Discount Rate (Risk-Free Rate and Market Risk Premium): a survey 2017

Nº 3 / 2017 - julio - septiembre

Discount Rate (Risk-Free Rate and Market Risk Premium): a survey 2017

Pablo Fernández
IESE Business School
Vitaly Pershin
Research Assistant IESE Business School
Isabel F. Acín
Independent Researcher University of Navarra

Abstract:

This paper contains the statistics of a survey about the Risk-Free Rate (Rf) and the Market Risk Premium (MRP) used in 2017 for 41 countries. We got answers for 68 countries, but we only report the results for 41 countries with more than 25 answers.
The average (Rf) used in 2017 was smaller than the one used in 2015 in 12 countries (in 5 of them the difference was more than 1%). In 10 countries the average (Rf) used in 2017 was more than a 1% higher than the one used in 2015 (see table 6).
The change between 2015 and 2017 of the average Market risk premium used was higher than 1% for 11 countries (see table 6).
Most of the respondents use for Europe and UK a Risk-Free Rate (Rf) higher than the yield of the 10-year Government bonds. Due to Quantitative Easing, the Risk-Free Rate (Rf) and the Market Risk Premium (MRP) reported for Euro countries are negatively correlated (Spain -51%; Germany -28%; France -47%; Italy -30%).

Keywords: equity premium; required equity premium; expected equity premium; risk-free rate; heterogeneous expectations.