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Reasonable normalized riskfree rate

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Reference no: EM131609455

On January 1, 2017, the 10-year treasury bond rate in the United States was 2.45%, low by historic standards. Assume that you were valuing a company in US dollars then, but were wary about the risk free rate being too low. Which of the following should you do?

a. Replace the current 10-year bond rate with a more reasonable normalized riskfree rate (the average 10-year bond rate over the last 30 years has been about 5-6%)

b. Use the current 10-year bond rate as your riskfree rate but make sure that your other assumptions (about growth and inflation) are consistent with the riskfree rate?

Reference no: EM131609455

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