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Risk Free Rate

The risk-free rate is the rate of return an investor can receive from an investment which is considered to be riskless. In reality, every investment will have some amount of risk, but it may be considered risk-free if the risk is sufficiently low.

In the United States, the risk-free rate is often referring to the yield on the three-month U.S. Treasury bill. Investors believe the risk of the United States government defaulting on its debt is so low that the risk can be ignored.