What is an RFR?

An RFR, or Risk-Free Rate, is the theoretical return on an investment with zero risk, typically represented by the yield on government bonds, such as U.S. Treasury bills. It serves as a benchmark for evaluating the performance of riskier investments, as it reflects the minimum return an investor would expect for taking on additional risk. The RFR is crucial in financial models, including the Capital Asset Pricing Model (CAPM), used to determine the expected return on assets.