What is the Riskfree Rate? A Search for the Basic Building Block

ArXiv ID: ssrn-1317436 “View on arXiv”

Authors: Unknown

Abstract

In corporate finance and valuation, we start off with the presumption that the riskfree rate is given and easy to obtain and focus the bulk of our attention on

Keywords: Risk-Free Rate, Valuation, Cost of Capital, Capital Budgeting, Corporate Equity

Complexity vs Empirical Score

• Math Complexity: 4.5/10
• Empirical Rigor: 2.0/10
• Quadrant: Philosophers
• Why: The paper is a conceptual, philosophical discussion on defining and obtaining the risk-free rate, with minimal advanced mathematics or empirical/data-driven backtesting implementation.

  flowchart TD
    A["Research Goal: What is the Risk-Free Rate?"] --> B["Methodology: Search & Conceptual Analysis"]
    B --> C{"Data Inputs: Govt Bonds,"}
    C --> D["Computational Process: Decompose Yields into<br>Pure Risk-Free Component &<br>Pricing of Default, Liquidity, Tax"]
    D --> E["Key Findings: No Perfect Proxy;<br>RFR is an Unobservable<br>Theoretical Construct"]