Wed, May 18, 2022

Kroll U.S. Normalized Risk-Free Rate Increased from 2.5% to 3.0%, Effective April 7, 2022

Download the Report

Note: This guidance has been superseded. Click here for the latest guidance.

Kroll regularly reviews fluctuations in global economic and financial market conditions that may warrant changes to our equity risk premium (ERP) and accompanying risk-free rate recommendations. The risk-free rate and ERP are key inputs used to calculate the cost of equity capital in the context of the capital asset pricing model (CAPM) and other models used to develop discount rates.

Based on market conditions prevailing at the end of March 2022, Kroll has increased the U.S. normalized risk-free rate from 2.5% to 3.0%, when developing USD-denominated discount rates as of April 7, 2022, and thereafter, until further guidance is issued. This rate is to be used with Kroll’s recommended U.S. ERP of 5.5%, implying a base U.S. cost of equity capital of 8.5% (= 3.0% + 5.5%). However, given how fast U.S. inflation expectations are rising, the current guidance could be changed again in the near future.


Insights

Sign up our Cost of Capital Thought Leadership

Kroll's Cost of Capital Resource Center shares trending insights related to global economic and financial market conditions impacting cost of capital inputs and valuations. We deliver what you need to know to stay current.