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 riskfree 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 in mid-June 2022, Kroll is increasing the U.S. normalized riskfree rate from 3.0% to 3.5% but recommends using the spot 20-year U.S. Treasury yield, if it is higher than 3.5%, when developing USD-denominated discount rates as of June 16, 2022 and thereafter, until further guidance is issued.
