Cost of Capital in the Current Environment
COVID-19 Update – September 2021
U.S. Cost of Capital Inputs

Total Assets Held by Major Central Banks Over Time

Data as of September 20, 2021

5.5%

Data as of September 20, 2021

% Change

Duff & PhelpsRecommended
Equity Risk Premium

After COVID-19

Feb 2020 – Sep 2021

106%
23%
89%
103%

Bank of England
Bank of Japan

2.5%

Normalized
Risk-Free Rate

European Central Bank
U.S. Federal Reserve

Duff & Phelps, A Kroll Business continues to monitor risk-freerates and other cost of capital inputs closely. If and when (i) longterm spot yields increase to a level that approaches the Duff &Phelps-recommended U.S. normalized risk-free rate (e.g.,differences are lower than 50 b.p.), and (ii) there is evidence that
this increase in spot yields is not transitory, we will then consider
recommending a return to using spot 20-year U.S. Treasury Yields
as the basis for the risk-free rate to be used in conjunction with
our recommended U.S. Equity Risk Premium.

2008 Global Financial Crisis

For more information, visit: www.duffandphelps.com/costofcapital

Sources: Capital IQ, FRED® Economic Data, Bank of England, Bank of Japan, European Central Bank

Global Market Volatility

Stock Market Performance Since
the Wuhan Lockdown*

Data as of September 22, 2021

VSTOXX® (Europe)

87.5

MAX during
COVID-19 crisis

82.7

85.6
23.7

Current
level

20.9

22.8

MSCI All Country
World Index

Global Credit Spreads

STOXX®

S&P 500

25.8%

Americas

80.9

20.0

Data as of September 22, 2021

Data as of September 22, 2021

MAX during
2008 Global
Financial Crisis

Long-termAverage

Global 10-Year Government Bond Yields

Europe 600

32.2%

10.3%

DAX 30CAC 40

IBEX 35

15.8%

11.1%

-7.5%

CSI 300

TOPIX

FTSE 100Eurozone

VIX Index (U.S.)

COVID-19

U.S.

CanadaBrazil

1.32%

1.29%

10.65%

EurozoneGermany

Netherlands-0.31%-0.46%-0.16%

FranceSpain

Italy-0.07%

0.31%

0.66%

UK

Switzerland

Sweden0.70%-0.26%

0.28%

China

India

Japan

2.90%

6.14%

0.05%

Data as of September 22, 2021

MAX during
COVID-19 crisis
Long-term
Average
Current
Level

18.8%

14.9%
6.7%

7.7%

3.8%

5.2%

2.0%

2.7%

20.4%

18.1%

Asia

MAX during
2008 Global
Financial Crisis

Europe – Other

Euro-DenominatedCorporate Credit Spreads

U.S. Corporate Credit
Spreads-5.7%

Sources: Capital IQ, FRED® Economic Data, Morningstar Direct
U.S. Corporate Credit Spreads are based on the difference in effective yields between the ICE BofA
U.S. High Yield Index and the ICE BofA US Corporate Index. Euro-Denominated Corporate Credit
Spreads based on the difference in effective yields between the Bloomberg Barclays Pan-European
High Yield Index (EUR) and the Bloomberg Barclays Euro Aggregate Corporate Bond Index. Longterm averages based on 1995 to present for VIX daily series, 1999 to present for VSTOXX dailyseries, 1996 to present for U.S. credit spread daily series, and 1998 to present for EUR-denominatedcredit spread monthly series.

U.S. and Eurozone Consumer
Sentiment vs. Business Confidence

Source: Capital IQ

Sources: Bloomberg (Brazil, India), European Central Bank (Eurozone aggregate yield),
Capital IQ (other countries)*The first lockdown due to COVID-19 began on January 23, 2020, in Wuhan, China.

Real GDP Growth – Q1 and Q2 2021
Data as of September 22, 2021

107.1
BusinessConfidence

99.0
99.5

71.0(1952–2021)

86.5(1985–2021)

111.9 100.0
101.5(1950–2021)

100.0(1985–2021)

117.6 100.0

Sources: Michigan University’s Index of Consumer Sentiment, OECD’s Business Confidence Index,
European Commission business and consumer surveys [The same methodology that the EuropeanCommission uses to standardize its Economic Sentiment Indicator (ESI) was applied to the Eurozone
Consumer Confidence and Business Climate Indicator series.]

U.S.

1.5%

Q1:

-0.3%

Q1: -1.6%

Q1:

0.4%

Q1: -1.1%

Q2:

1.6%

Q2:

2.2%

Q2:

4.8%

Q2:

1.3%

Q2:

Q1:6.3%

Q1:-1.1%

Q1: -6.2%

Q1:1.6%

Q1: -4.2%

Q2:6.6%

Q2:9.2%Q2: 20.7%

Q2:5.3%

Q2:11.1%

8.0%

September 2020

7.8%

8.7%

December 2020

6.7%

8.1%

March 2021

6.0%

8.1%

5.9%

7.8%

Latest Available*

5.2%

WORLD
Compound Annual
Growth Rates (%)
2020 to 2021

Compound Annual
Growth Rates (%)
2020 to 2021

2021

2.6

5.3

1.0

2.1

Compound Annual
Growth Rates (%)
2020 to 2021

U.S.

After COVID-19

Cumulative
Growth (%)
2020-2021

EUROZONE

7.6%

1.9%

Data as of September 20, 2021

5.7 2022
4.42020-3.4

After COVID-19
Cumulative
Growth (%)
2020-2021

1.9

3.8

1.2

2.4

CHINA

After COVID-19

Cumulative
Growth (%)
2020-2021

Compound Annual
Growth Rates (%)
2020 to 2021

2021

6.0 2022
4.32020-3.4

After COVID-19

2021

Cumulative
Growth (%)
2020-2021

8.420222021
BeforeAfter
COVID-19 COVID-19

June 2021

0.5%Real GDP Growth (%) Estimates (Median)

BeforeAfter
COVID-19 COVID-19

June 2020

Japan

Quarter-on-quarter growth based on the growth rate from Q4 2020 to Q1 2021 and Q1 2021 to Q2 2021. This rate is annualized by computing the compounded growth rate for four quarters as follows: (1 + Real GDPQ/Q Growth)^4. The annualized rate shows what the quarterly change would be if it lasted a full year.

Data as of September 20, 2021

7.1%

China

Sources: FRED® Economic Data (Eurozone, Japan, U.S.), National Bureau of Statistics of China, UK's Office for National Statistics

U.S. vs. Eurozone Unemployment Rate

4.4%

UK

Q1:

*Data through September 2021 for U.S. and Eurozone Consumer Sentiment.. Data through August
31, 2021, for U.S. and Eurozone Business Confidence.

March 2020

Eurozone

BeforeAfter
COVID-19 COVID-19

101.0

Long-Term Avg.

Source: U.S. Bureau of Labor Statistics, Eurostat* Data through August 2021 for the United States and July 2021 for the Eurozone.

1.1

2.3

-1.0

-1.9

4.9 2022
4.42020-6.5

BeforeAfter
COVID-19 COVID-19

Consumer
Sentiment

Post-COVID-19(Latest Available*)

ANNUALIZEDQUARTER-ONQUARTERGROWTH (%)

Pre-COVID-19(February 2020)

QUARTER-ONQUARTERGROWTH (%)

Data as of September 20, 2021

5.7
5.3

11.8
10.9

5.7

2020

2.3“ Risk has subsided since the outbreak ofCOVID-19, but economic recovery is still
progressing at different speeds amongregions. The Delta variant is leading todownward revisions in real GDP growthfor some geographies.
– Carla Nunes, CFA, Managing Director, Duff & Phelps, A Kroll Business

Sources: OECD, International Monetary Fund, World Bank, Blue Chip Economic Indicators, Consensus Economics, Economic Intelligence Unit, Fitch Ratings, IHS Markit, Moody's Analytics, Oxford Economics, S&P Global Ratings”

Before COVID-19 median estimates are based on data released in December 2019 and early January of 2020. After COVID-19 median estimates are based on data available as of the date noted above.
Compound annual growth rate (CAGR) is calculated as the annualized rate of return of median real GDP growth rate estimates from the end of 2019 through the end of 2021:[(1 + 2020 Real GDP Growth Rate) * ( 1 + 2021 Real GDP Growth Rate ) ] ^ (1/2) – 1. Cumulative growth is calculated as the total (cumulative) growth rates of median real GDP estimates from the end of 2019 through the end of2021: (1 + 2020 Real GDP Growth Rate ) * ( 1 + 2021 Real GDP Growth Rate ) – 1. These metrics show the annualized and cumulative real GDP growth rates that were expected at the end of 2019 (Before COVID- 19) for the
2020–2021 period vs. what the expectations are currently (After COVID-19).

About Duff & Phelps, A Kroll Business - For nearly 100 years, Duff & Phelps has helped clients make confident decisions in the areas of valuation, real estate, taxation and transfer pricing, disputes, M&A advisory and other corporate transactions. For more information, visit www.duffandphelps.com.
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M&A advisory, capital raising and secondary market advisory services in the United States are provided by Duff & Phelps Securities, LLC. Member FINRA/SIPC. Pagemill Partners is a Division of Duff & Phelps Securities, LLC. M&A advisory, capital raising and secondary market advisory services in the United Kingdom are provided byDuff & Phelps Securities Ltd. (DPSL), which is authorized and regulated by the Financial Conduct Authority. Valuation Advisory Services in India are provided by Duff & Phelps India Private Limited under a category 1 merchant banker license issued by the Securities and Exchange Board of India.
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