A higher variance of innovations to future consumption growth increases the variance of returns on the wealth portfolio and, hence, of the pricing kernel, leading to a higher equity premium and lower risk-free rates
Country-level macroeconomic variables Risk-free rates
10-year govt bond yields 10-year benchmark govt bond redemption yield Deposit interest rates Interest rates on households and non- financial corporations deposits with agreed maturity Macroeconomic fundamentals Private credit to GDP Outstanding loans and securities to the private sector at beginning of period over annual GDP Domestic demand Growth of domestic demand component of GDP GDP growth Growth of GDP Investment growth Growth of Gross Fixed Capital Formation (GFCF) Banks' econ.
Social safety nets are being lowered and there will be no tailwind from falling risk-free rates
to boost returns.
But when a more flexible utility function is used--a utility function designed to fit both the low risk-free rates
and high equity risk premiums that we see in financial markets--then the stand one takes on hedging versus catastrophic risk can matter a lot.
5 per cent, as continued low risk-free rates
, tightening credit spreads and bond purchases through quantitative easing programs were all supportive performance trends during the year.
Using the much lower risk-free rates
, these studies then project multi-trillion dollars of unrecorded and unfunded pension liabilities.
Long-term bond yields are very low, due to very low risk-free rates
and moderate credit spreads.
Prudential was able to increase starting costs after a calming of market volatility and a review of risk-free rates
meant the cost of providing guarantees behind the Income Choice Annuity had fallen.
We assume that asset values are lognormally distributed and that the risk-free rates
of interest are constant through time.
However, increasing the risk-free rates
of Equations (6) and (7) up to the cost of debt would be an exaggeration, since default risk for debt and interest payments is higher than for depreciation tax shields.
Though these numbers remain notably above the equivalent risk-free rates
, we clearly saw signs of improvement in financial markets.
The innovative characteristic of a make-whole call provision is that the call price floats inversely with risk-free rates