Risk-Free Rate

Definition

The theoretical rate of return on an investment with zero default risk, used as the foundation for building discount rates in valuation. In practice, the yield on government bonds of a maturity matching the expected cash flow duration serves as a proxy — typically US Treasury bonds for USD-denominated valuations or UK gilts for GBP-denominated analyses. The risk-free rate is the starting point for both CAPM and build-up cost of equity calculations.