What is the Risk Free Rate?

Dictionary Definition

The risk free rate is the return that can be earned by investing in a riskless security, e.g., U.S. Treasury bonds.

Plain English

The risk free interest rate is the rate of return of a hypothetical investment with no risk of financial loss, over a given period of time.

The 20 year treasury yield curve rate is the most widely used metric for the risk-free rate.

Why it Matters to You

This is used in calculating the WACC.