I understand the concept of the risk-free rate however, I've seen both 3 mo and 10 year treasuries used as the risk free rate. What is the most common rate used when comparing portfolio returns to a risk free rate. In other words what is the risk free rate by definition, application, and currently?
Risk Free Rate
- Thread starter TradingLogic
- Start date
It depends on your investment time horizon.
If you are holding stocks for a few days, then you should probably use the overnight rate. If you are about to invest in a stock with a 10 year horizon then the 10 year rate is applicable.
If you are holding stocks for a few days, then you should probably use the overnight rate. If you are about to invest in a stock with a 10 year horizon then the 10 year rate is applicable.
All the rates are annualized correct. i.e...from what I can see the 3 month rate is .02% that is .02% annualized?
yes. rates are annualized.