Two new resources for 2020 UK ERP, risk-free rate, and other indicators

BVWire–UKIssue #12-1
March 3, 2020

cost of capital
cost of capital, discount rate, equity risk premium, risk analysis, cost of equity

Pablo Fernandez, professor of finance at the IESE Business School, is surveying business valuation professionals in the UK to determine what cost of equity assumptions they are using for 2020. Please complete this short form and email to Professor Fernandez. Those who reply will receive the results in the next month.

1. The market risk premium (equity premium) I am using in 2020 for the UK is: _______ %

Other countries:

for________ is: _______ %

for________ is: _______ %

for________ is: _______ %

2. The risk-free rate that I am using in 2020 for the UK is: _______ %

for ________ is: _______ %

for ________ is: _______ %

for ________ is: _______ %

Meanwhile, free 2020 country-by-country equity risk premia, sovereign credit default swap (CDS) spreads, government bond rates, and risk-free rates by currency and synthetic risk-free rates (with inflation rates by currency) are available from Aswath Damodaran (New York University Stern School of Business). He finds an implied ERP for the UK of 5.69% and for Ireland of 6.04%. Links to the spreadsheets are in a blog post in which he looks at two variables, country and currency, that are ‘often conflated in valuation, perhaps because risky countries tend to have volatile currencies, and separated the discussion to examine the determinants of each, and why they should not be lumped together,’ he writes.

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