Real Risk-Free Rate of Return

Real Risk-Free Rate of Return
Real Risk-Free Rate of Return

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Real Risk-Free Rate

Current 30-day T-bills are yielding 3.5 percent. Your accountant provided you with these interest rate premiums:

  • IP = 1.5%
  • LP = 0.6%
  • MRP = 1.8%
  • DFP = 2.15%

What is the real risk-free rate of return based on this data?

The risk-free rate of return is the theoretical rate of return of an investment with zero risk. The risk-free rate represents the interest an investor would expect from an absolutely risk-free investment over a specified period of time.

The so-called “real” risk-free rate can be calculated by subtracting the current inflation rate from the yield of the Treasury bond matching your investment duration.

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