How to Calculate the Risk Free Rate in Excel

by
.rf-calculator-container { font-family: -apple-system, BlinkMacSystemFont, "Segoe UI", Roboto, Helvetica, Arial, sans-serif; max-width: 800px; margin: 20px auto; padding: 25px; border: 1px solid #e1e1e1; border-radius: 12px; background-color: #ffffff; box-shadow: 0 4px 6px rgba(0,0,0,0.05); } .rf-calculator-container h2 { color: #1a202c; margin-top: 0; margin-bottom: 20px; font-size: 24px; border-bottom: 2px solid #3182ce; padding-bottom: 10px; } .rf-input-group { margin-bottom: 20px; } .rf-input-group label { display: block; font-weight: 600; margin-bottom: 8px; color: #4a5568; } .rf-input-group input { width: 100%; padding: 12px; border: 1px solid #cbd5e0; border-radius: 6px; font-size: 16px; box-sizing: border-box; } .rf-calc-btn { background-color: #3182ce; color: white; padding: 14px 24px; border: none; border-radius: 6px; font-size: 18px; font-weight: bold; cursor: pointer; width: 100%; transition: background-color 0.2s; } .rf-calc-btn:hover { background-color: #2b6cb0; } .rf-result-area { margin-top: 25px; padding: 20px; background-color: #f7fafc; border-radius: 8px; border-left: 5px solid #3182ce; } .rf-result-value { font-size: 28px; font-weight: 800; color: #2d3748; } .rf-article-section { margin-top: 40px; line-height: 1.6; color: #333; } .rf-article-section h3 { color: #2d3748; margin-top: 25px; } .excel-code { background-color: #edf2f7; padding: 15px; border-radius: 5px; font-family: "Courier New", Courier, monospace; display: block; margin: 10px 0; color: #2c5282; }

Treasury Bill Risk-Free Rate Calculator

Annualized Risk-Free Rate
0.00%

How to Calculate the Risk-Free Rate in Excel

The Risk-Free Rate (Rf) represents the theoretical return on an investment with zero risk. In practice, financial analysts use government-issued securities, such as US Treasury Bills, to represent this rate. When you need to calculate this in Excel, you are typically converting a short-term discount into an annualized percentage yield.

The Risk-Free Rate Formula

To calculate the annualized yield of a T-Bill (the most common proxy for Rf), use the following mathematical formula:

Annualized Rf = [(Face Value – Purchase Price) / Purchase Price] * (365 / Days to Maturity)

Step-by-Step Excel Instructions

If you are working in an Excel spreadsheet, follow these steps to determine the rate:

  1. Input Data: Enter your Face Value in cell A1 (e.g., 1000), Purchase Price in A2 (e.g., 980), and Days to Maturity in A3 (e.g., 90).
  2. Apply Formula: In cell A4, enter the following formula: =((A1-A2)/A2)*(365/A3)
  3. Format: Select cell A4 and change the cell format to "Percentage" to see the rate clearly.

Using the YIELDDISC Function

Excel also provides a built-in function for discounted securities. If you have the settlement date and maturity date, you can use:

=YIELDDISC(settlement, maturity, pr, redemption, [basis])

Where pr is the price per $100 face value and redemption is the $100 face value. The basis 3 represents a 365-day year.

Example Calculation

Suppose you purchase a 13-week (91-day) Treasury Bill with a face value of 10,000 for a price of 9,875. In Excel, your calculation would look like this:

  • Holding Period Return: (10,000 – 9,875) / 9,875 = 0.01265 (1.26%)
  • Annualization Factor: 365 / 91 = 4.011
  • Annualized Risk-Free Rate: 1.265% * 4.011 = 5.07%
function calculateRiskFreeRate() { var faceValue = parseFloat(document.getElementById("rfFaceValue").value); var purchasePrice = parseFloat(document.getElementById("rfPurchasePrice").value); var days = parseFloat(document.getElementById("rfDays").value); var resultBox = document.getElementById("rfResultBox"); var resultDisplay = document.getElementById("rfResultDisplay"); var explanation = document.getElementById("rfExplanation"); if (isNaN(faceValue) || isNaN(purchasePrice) || isNaN(days) || purchasePrice <= 0 || days = faceValue) { alert("Purchase price must be lower than Face Value for a positive yield."); } // Step 1: Calculate Holding Period Return var hpr = (faceValue – purchasePrice) / purchasePrice; // Step 2: Annualize based on 365 day year var annualizedRate = hpr * (365 / days); // Convert to percentage var finalPercentage = annualizedRate * 100; resultDisplay.innerHTML = finalPercentage.toFixed(3) + "%"; explanation.innerHTML = "Based on a face value of " + faceValue + " and a purchase price of " + purchasePrice + " over " + days + " days, the implied annualized risk-free rate is " + finalPercentage.toFixed(3) + "%."; resultBox.style.display = "block"; }

Leave a Comment