The average required return on equity used for the U.S. is 7.3%, according to “Market Risk Premium and Risk-Free Rate Used for 88 Countries in 2021,” the latest research from Pablo Fernandez, Sofia Bañuls, and Pablo Fernandez Acin. This paper contains the statistics of a May 2021 survey about the risk-free rate (RF) and the market risk premium (MRP). By June 3, 2021, 1,624 email responses were received (from more than 15,000 sent). In the paper, the authors make these observations:
- Most previous surveys have been interested in the expected MRP, but this survey asks about the required MRP;
- For European countries, many respondents use a risk-free rate higher than the yield of the 10-year government bonds; and
- The coefficient of variation (standard deviation/average) of the risk-free rate is higher than the coefficient of variation of MRP for the euro countries.
Pablo Fernandez, a professor in the department of financial management at the University of Navarra—IESE Business School in Spain, has over 200 papers published on SSRN, many of them related to valuation. He currently ranks as No. 1 in all-time downloads.
Please let us know
if you have any comments about this article or enhancements you would like to see.