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Definition: Risk Free Rate

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The rate or index that should be used to represent the return of an investment with zero risk. By default, the risk free rate is set to 3% in Advisor View. However, you can set a custom static risk free rate, or track an index as the risk free rate. To learn more about risk free rate, see Assign Risk Free Rate (Static or Index).

The risk free rate is used in Composite and Account Analytics to calculate Jensen’s Alpha, Treynor Ratio, and the Sharpe Ratio.