“Normalized” Risk-Free rate: fiction or science fiction?

16 Pages Posted:

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=

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/

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