Cost of Capital in the Current Environment
COVID-19 Update – December 2021
Global Cost of Capital Inputs

Total Assets Held by Major Central Banks Over Time

Data as of November 30, 2021

Data as of November 30, 2021

Duff & PhelpsRecommended
Equity Risk Premium

Normalized
Risk-Free Rate% Change

USD 25.9 Trillion

After COVID-19

United States

Feb 2020 – Nov 2021

104%
19%
87%
108%

(in USD)Bank of England

5.5%

2.5%

Bank of Japan(in EUR)

Eurozone *European Central Bank

5.5%

1.5%

U.S. Federal Reserve

COVID-19to6.0%

2008 Global Financial Crisis* German normalized risk-free rate and Eurozone equity risk premium (ERP) for use in
EUR-denominated discount rates from a German investor perspective. Additionalcountry risk adjustments may be warranted when estimating discount rates for othercountries in the Eurozone.

For more information, visit: https://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 November 30, 2021

VSTOXX® (Europe)

80.9

87.5

MAX duringCOVID-19 crisis

82.7

85.6

Current
Level

20.0

23.7

27.2

30.1

MSCI All Country
World Index

Global Credit Spreads

STOXX®
Europe 600

S&P 500

26.2%

Americas

Data as of November 30, 2021

MAX during
2008 Global
Financial Crisis

Long-Term
Average

Data as of November 30, 2021

37.3%

10.2%

DAX 30

CAC 40IBEX 35

12.8%

12.5%

-12.7%CSI 300

TOPIX

FTSE 100Eurozone

VIX Index (U.S.)

Global 10-Year Government Bond Yields
U.S.

CanadaBrazil

1.43%

1.67%

11.29%

EurozoneGermany

Netherlands-0.35%-0.50%-0.14%

FranceSpainItaly-0.06%

0.40%

0.96%

UK

Switzerland

Sweden0.84%-0.24%

0.18%

ChinaIndia

Japan

2.83%

6.33%

0.07%

Data as of November 30, 2021

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

18.8%

14.9%
6.7%

7.7%

3.8%

5.2%

2.8%

3.1%

20.7%

11.4%

Asia

MAX during
2008 Global
Financial Crisis

Europe – Other

Euro-DenominatedCorporate Credit Spreads

U.S. Corporate Credit
Spreads-6.0%

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

Real GDP Growth – Q1, Q2 and Q3 2021
Data as of November 30, 2021

Data as of November 30, 2021

Post-COVID-19(November 2021)

101.0
107.1

BusinessConfidence

99.0
99.4

Long-Term Avg.
(1952–2021)

86.4

67.4

(1985–2021)

106.3 100.0
101.7(1950–2021)

100.0(1985–2021)

118.1 100.0

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

QUARTER-ONQUARTERGROWTH (%)

Consumer
Sentiment

U.S.

ANNUALIZEDQUARTER-ONQUARTERGROWTH (%)

Pre-COVID-19(February 2020)

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.

Eurozone

UK

China

Japan

Q1:

1.5%

Q1:-0.3%

Q1: -1.4%

Q1:

0.2%

Q1: -1.1%

Q2:

1.6%

Q2:

2.1%

Q2:

5.5%

Q2:1.2%

Q2:

Q3:

0.5%

Q3:

2.2%

Q3:

1.3%

Q3:0.2%Q3: -0.8%

Q1:

6.3%

Q1:

-1.2%

Q1: -5.3%

Q1:0.8%

Q1: -4.1%

Q2:
Q3:

6.7%
2.1%

Q2:
Q3:

8.7%
9.3%

Q2: 23.9%
Q3: 5.1%

Q2:
Q3:

4.9%
0.8%

Q2: 1.5%
Q3: -3.0%

0.4%

Sources: FRED® Economic Data (Eurozone, Japan, U.S.), National Bureau of Statistics of China, UK's Office for National Statistics
Quarter-on-quarter growth based on the growth rate from Q4 2020 to Q1 2021, Q1 2021 to Q2 2021, and Q2 2021 to Q3 2021. This rate is annualized by computing the compounded growth rate for four quarters as
follows: (1 + Real GDP Q/Q Growth)^4. The annualized rate shows what the quarterly change would be if it lasted a full year.

Real GDP Growth (%) Estimates (Median)
Data as of December 1, 2021

WORLD

7.1%

June 2020

11.1%

8.0%

September 2020

7.8%

8.7%

December 2020

6.7%

8.1%

March 2021

6.0%

8.1%

June 2021

5.9%

7.8%

September 2021

4.8%

7.4%

4.2%

7.3%

Latest Available*

BeforeAfter
COVID-19 COVID-194.4%* Data through November 2021 for the United States and October 2021 for the Eurozone.

“Carla S. Nunes, CFA – Managing Director, Kroll

Compound Annual
Growth Rates (%)
2020-2021

2021

2.6

5.3

1.0

2.0

Compound Annual
Growth Rates (%)
2020-2021

Source: U.S. Bureau of Labor Statistics, Eurostat

Global economic recovery is continuing at a robust, but
uneven pace. Global supply disruptions and regional labor
shortages are creating significant inflationary pressures,
which combined with a resurgence in COVID-19 cases arecontributing to further downward revisions in real GDPgrowth. Financial market risk has risen recently due to anew COVID-19 variant, but the longer-term impact ofOmicron is still a wild card.

Cumulative
Growth (%)
2020-2021

EUROZONEBeforeAfter
COVID-19 COVID-19

March 2020

Compound Annual
Growth Rates (%)
2020-2021

U.S.

After COVID-19

5.6 2022
4.3

2020

-3.4

BeforeAfter
COVID-19 COVID-19

Data as of November 30, 2021

1.1

2.3

-0.9

-1.7

1.8

3.7

1.0

1.9

Compound Annual
Growth Rates (%)
2020-2021

5.12020-6.52022

4.3

Cumulative
Growth (%)
2020-2021

CHINA

Cumulative
Growth (%)
2020-2021

2021

After COVID-192021

After COVID-19

BeforeAfter
COVID-19 COVID-19

U.S. vs. Eurozone Unemployment Rate

5.7
5.1

5.5 2022
4.0

2020

-3.4

After COVID-19

2021

Cumulative
Growth (%)
2020-2021

11.8
10.5

8.0
2022

5.3

2020

2.3

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).

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