aswathdamodaran.blogspot.com · 2022-02-08 · 1577d

Data Update 4 for 2022: Risk = Danger + Opportunity

This comprehensive analysis examines how risk should be conceptualized, measured, and incorporated into corporate finance decisions, arguing that risk represents uncertainty about outcomes rather than expected bad outcomes. The article breaks down risk components across business, geographic, and financial dimensions, provides frameworks for calculating cost of capital, and critiques common delusions in how companies and investors set hurdle rates.

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Metrics in this report

Cost of Capital (Global Median)

6.33percent

median

Global companies as of start of 2022, in US$ terms

Cost of Capital (US Median)

5.77percent

median

US companies as of start of 2022, in US$ terms

Country Risk Premium (India)

2.18percent

India as of start of 2022

Default Spread (Baa3 Rating)

1.87percent

Starting 2022; example for India sovereign rating

Equity Risk Premium (India)

6.42percent

India as of start of 2022

Implied Equity Risk Premium (US)

4.24percent

US market as of start of 2022

Relative Volatility (Emerging Market Equity to Bonds)

1.16ratio

S&P emerging market data used to scale default spreads