Duff & Phelps has decreased its U.S. normalized risk-free rate from 3.5% to 3.0% effective 30 September 2019, the firm says in a statement. This new rate, used in conjunction with D&P’s equity risk premium of 5.5% (reaffirmed), implies a “base” U.S. cost of equity capital estimate of 8.5% (3.0% + 5.5%), the firm says.

The concept of normalizing the risk-free rate emerged around the time of the last financial crisis, since historical rates lagged actual values badly during that period. A number of international BV leaders strongly disagree with the use of a normalized rate, such as Chris Mercer of Mercer Capital (see his post on this topic) and Professor Aswath Damodaran of the New York University Stern School of Business, who writes that “a valuation is an assessment of the future as of right now, and you have to use the current risk-free rate.”