Risk-free rate

The risk-free rate is the expected return on a default-free instrument with cash-flow duration roughly matched to the asset being valued. For long-duration equities the convention is the ten-year Treasury yield, refreshed at report time. The choice of duration matters: short-rate-based discount rates are mechanically too low for ten-year cash-flow projections, while thirty-year yields incorporate term-premium risk that is awkward to disentangle from genuine equity risk premium. The 'risk-free' label is conventional, not literal: even Treasury yields embed inflation expectations and term premia, and in extreme stress periods (early COVID, the 2011 debt-ceiling episode) Treasury yields are not perfectly clean. For our purposes, the ten-year nominal yield is the standard input and is documented in the appendix of every report along with the date of capture, since rates can move 30–50 basis points in a quarter and a stale risk-free rate produces stale fair values.