How To Calculate Risk Free Rate in Excel

Generally, the central bank of a country guarantees a risk-free rate on government bonds or bank deposits.

Real vs Nominal Risk-Free Rate

Nominal risk-free interest rate does not consider inflation. It is the stated interest on a loan or return on an investment without considering macroeconomic impacts or compounding of interest.

Real risk-free rate is adjusted to the effects of inflation. It reflects the real cost that the borrower withdraws of investor invests.

The real risk-free rate should be considered while taking a business decision for profitability of a project.

Conversion between Real and Nominal Risk-Free Rate

Risk-Free Interest Rate

Risk Free Rate of Return Formula = (1+ Government Bond Rate)/ (1+Inflation Rate)-1

Calculate Using Excel

Step 1: Insert the input data available from the website of the central bank of the country.

Step 2: Calculate the Real Rate using the formula.

Risk Free Rate of Return Formula = (1+ Government Bond Rate)/ (1+Inflation Rate)-1

Step 3: Calculate Nominal Risk-Free Rate.

The formula is: Nominal Risk Free Rate of Return Formula = (1+ Real Risk free rate)/ (1+Inflation Rate)

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Further reading: 
Basic concepts 
Getting started with Excel
Cell References