'Normalized' Risk-Free Rate: Fiction or Science Fiction?

16 Pages Posted: 15 Dec 2020

Date Written: October 10, 2020


As interest rates on Government Bonds have decreased, some analysts and consultants in Europe and in the US are using what they call “Normalized Risk-Free rate”.

We show several inconsistencies and errors in the use of “Normalized Risk-Free rate”.
Section 5 is a short case that may be used in class. It contains 26 interesting comments.

Keywords: Normalized Risk-Free rate; normalization; company valuation; WACC; required return to equity; discounted cash flow

JEL Classification: G12, G31, M21

Suggested Citation

Fernandez, Pablo, 'Normalized' Risk-Free Rate: Fiction or Science Fiction? (October 10, 2020). Available at SSRN: https://ssrn.com/abstract=3708863 or http://dx.doi.org/10.2139/ssrn.3708863

Pablo Fernandez (Contact Author)

IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
+34 91 357 0809 (Phone)
+34 91 357 2913 (Fax)

HOME PAGE: http://web.iese.edu/PabloFernandez/

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics