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Country Risk: Currency and Cost of Capital As a final part to this post, to see the shifts in country risk that we have seen in 2022, let’s start with an assessment of riskfreerates.
Rf = Risk-freeRate. B = Beta. (Rm Rm – Rf) = Equity Market Risk Premium. DCF WACC—similar to the above except that it calculates a different WACC in each forecast period based on a changing capital structure (D/E) and thus a changing beta in each period. Riskfreerate (can use 10y Treasury).
10] , [23] , [2] Discount Rate: The rate used to discount future cash flows is typically the cost of equity, calculated via the Capital Asset Pricing Model (CAPM): Cost of Equity = Risk-FreeRate + Beta * Market Risk Premium. [23] 23] Risk-FreeRate: Tied to government bond yields (e.g.,
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