Risk-Free Rate Of Return

See: Risk-Free Asset. See: Treasury Bill. See: T-Note.

The risk-free rate of return is the very low investment return investors get for taking no risk, in most examples, via buying U.S. Government-backed "paper," or bonds.

They're backed by the "full faith and credit" of Uncle Sam to tax his hard-working citizens and pay his debts like a Lannister. So that risk-free rate is whatever the rate is that the regular Treasury auctions yield, i.e. the rate at which investors in Government paper are willing to receive in order to give Uncle Sam cash to run his bidness.

See: Spread to Treasuries to get a sense for how the process works.