Risk-Free Rate (Rf): The theoretical return of an investment with zero risk. Typically based on government bonds like U.S. Treasury bills.
- Use current 10-year Treasury yield for long-term investments
- Use T-bill rates for short-term analysis
Beta: Measures a stock's volatility relative to the overall market.
- Beta = 1: Moves with the market
- Beta > 1: More volatile than market
- Beta < 1: Less volatile than market
Market Return: The expected return of the overall market. Historically, the S&P 500 has returned about 10% annually.