Episode Details

Every introductory finance class starts by introducing a "risk-free" investment, and the return on that investment becomes an ingredient in almost every aspect of corporate finance and investing. The standard practice for estimating this rate is to use the rate on a government bond, but that presumes that governments, because of their control of money printing, never default. The recent downgrade of the US, by Fitch, from AAA to AA+, challenges that notion, and in this session, I argue that default risk is a clear and present danger even when governments borrow in the local currency, and that when it exist, getting to a risk-free rate becomes messier, and there can be consequences for risk premiums.
Slides: https://pages.stern.nyu.edu/~adamodar/pdfiles/blog/Riskfree2023.psd
Blog Post: https://aswathdamodaran.blogspot.com/2023/08/in-search-of-safe-havens-trust-deficit.html

Learn more about your ad choices. Visit megaphone.fm/adchoices