Cost of Capital in the Current Environment
Update – May 2022

“In December 2021, the global economy appeared to be on a strong path to recovery from COVID-19, although with some unevenness across regions. Since
January 2022, global equity markets have become more volatile as investors try to ascertain the magnitude and speed at which central banks will raise interest
rates, as a surge in inflation continues to surprise—reaching 30- to 40-year-highs in some countries. Russia’s recent war on Ukraine has placed furtherpressure on an already-strained global supply chain and is adding further to inflationary pressures.
Carla S. Nunes, CFA – Managing Director, Kroll

Kroll Cost of Capital Inputs

Total Assets Held by Major Central Banks Over Time

Data as of May 20, 2022

Normalized
Risk-Free Rate

Data as of May 13, 2022

Kroll-Recommended
Equity Risk Premium% Change

USD 24.9 Trillion

After COVID-19

Feb 2020 – May 2022

U.S.

(in USD)

3.0%

5.5%

85%5%79%
115%

Bank of EnglandEurozone *Bank of Japan(in EUR)

European Central Bank

5.5%2.0%”

U.S. Federal Reserveto6.0%

COVID-19

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.kroll.com/costofcapitalnavigator

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

Global Market Volatility

Global 10-Year Government Bond Yields

Data as of May 20, 2022

80.9

Max during
COVID-19 crisis

82.7

Since Wuhan Lockdown*

87.5
85.6

20.1

Current
levelEurozone

28.7

2.78%

2.84%

12.27%

TOPIX

6.7%

7.7%

3.8%

5.0%

3.3%

8.5%

Japan

MSCI All Country World Index

8.0%

CAC 405.2%

DAXEurozone

Germany

Netherlands

Germany

1.03%

0.84%

1.24%

STOXX® Europe 600

FranceSpain

Italy

1.44%

2.08%

2.96%

CSI 300

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

1.8%

China

FTSE 100

-1.6%

UK

IBEX 35
Spain

Year-to-Date 2022

Asia

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 U.S. Corporate Index. Euro-denominated corporate credit
spreads are based on the difference in effective yields between the Bloomberg Barclays PanEuropean High Yield Index (EUR) and the Bloomberg Barclays Euro Aggregate Corporate BondIndex. Long-term averages are based on 1995 to present for VIX daily series, 1999 to present for
VSTOXX daily series, 1996 to present for U.S. credit spread daily series, and 1998 to present forEUR-denominated credit spread monthly series.

2.6%Eurozone

FTSE 100

0.1%UKUKSwitzerland

Sweden

1.89%

0.69%

1.69%

IBEX 35

-2.6%

Spain

-5.8%

TOPIXJapan

-11.6%

4.7%

Sources: Capital IQ, FRED® Economic Data, Morningstar Direct

4.4%-10.9%

Europe – Other

18.8%

14.9%

17.3%

U.S.

Euro-DenominatedCorporate Credit Spreads

U.S. Corporate Credit
Spreads

Currentlevel

BrazilWorld

Data as of May 20, 2022

Long-term
average

CanadaFranceGlobal Credit Spreads

Max during
COVID-19 crisis

S&P 500

U.S.

23.8

29.4

Max during
2008 Global
Financial Crisis

Data as of May 20, 2022

VSTOXX® (Europe)

Max during
2008 Global
Financial Crisis

Long-termaverage

Data as of May 20, 2022

Americas

VIX Index (U.S.)

Stock Market Performance

ChinaIndia

Japan

2.82%

7.36%

0.25%

Sources: Bloomberg (Brazil, India), European Central Bank (Eurozone aggregate yield) andCapital IQ (other countries)

STOXX® Europe 600
Eurozone-12.0%

DAX-12.1%CAC 40Germany
France-17.5%

CSI 300-17.6%MSCI All Country World Index-18.1%

S&P 500

China

WorldU.S.

Source: Capital IQ*The first lockdown due to COVID-19 began on January 23, 2020, in Wuhan, China.

Long-Term Inflation Expectations (Median)
Data as of May 17, 2022

Data as of May 2022

Pre-COVID-19(February 2020)

Consumer
Sentiment

101.0
107.4

BusinessConfidence

99.0
99.4

Post-COVID-19(April 2022)

59.1
75.9
100.5

Long-Term Avg.
(1952–2022)

86.2(1985–2022)

100.0(1950–2022)

100.0(1985–2022)

119.9 100.0

U.S.

Germany

2.6%

2.6%

Inflation estimates over the long-term rosefrom 2.0% in June 2020 to 2.6% in May 2022.

Long-term inflation expectations have surged
from 1.6% in June 2020 to 2.6% in May 2022.

Sources: Michigan University’s Index of Consumer Sentiment (updated through May 2022), OECD’s
Business Confidence Index and European Commission business and consumer surveys [The samemethodology that the European Commission uses to standardize its Economic Sentiment Indicator(ESI) was applied to the Eurozone Consumer Confidence and Business Climate Indicator series.]

Sources of underlying U.S. data: Blue Chip Economic Indicators; Blue Chip Financial Forecasts, Consensus Economics, IHS Markit, Federal Reserve Bank of Cleveland, Federal Reserve Bank of Philadelphia(Aruoba Term Structure of Inflation Expectations, Livingston Survey, and Survey of Professional Forecasters), Oxford Economics and the University of Michigan Inflation Expectations.

U.S. vs. Eurozone Unemployment Rate

Real GDP Growth (%) Estimates (Median)

Data as of April 2022

Sources of underlying German data: Consensus Economics, Economist Intelligence Unit, IHS Markit, International Monetary Fund, Oxford Economics and PwC

Data as of May 20, 2022

WORLD

U.S.

EUROZONE

2020
MarchJune
September
December

4.4%
11.0%
7.9%
6.7%

7.1%
8.0%
8.7%
8.1%

6.0%
5.9%
5.2%
4.2%

8.1%
7.8%
7.6%
7.0%

2021

2021

5.820222020

5.72023

3.4 3.22021
2022

5.32023

2.8 2.12020

2.7 2.3

2020

-6.5

-3.4

-3.4

2022 2023

2021
March
June
September
DecemberLatest available*

3.6%

6.8%

3.6%

6.8%

Source: U.S. Bureau of Labor Statistics and Eurostat* Data through April 2022 for the U.S. and March 2022 for the Eurozone.

INDIA
8.7

8.1
2020

2.2

UK

2021

2021

2022

2022
March

CHINA

4.6

2023

5.3

2022

7.4

2021
2023

7.4

6.1

2022

3.8

2020

-7.1

2020

-9.4

2023

1.3

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 andS&P Global Ratings

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