On January 1, 2020, the 10-year treasury bond rate in the United States was 1.92%,...
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Accounting
On January 1, 2020, the 10-year treasury bond rate in the United States was 1.92%, 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 risk free 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 risk free rate but make sure that your other assumptions (about growth and inflation) are consistent with the risk free rate
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