The DCF Big Picture and First Steps on Risk-Free Rates

We started the class by completing a big picture perspective on discounted cash flow models, noting that while the way we get cash flows, growth rates and discount rates will vary, they are not only tied together with the same principles but require internal consistency. We started then with a discussion of risk and how it plays out in discount rates, before embarking on an assessment of riskfree rates, and with a discussion on whether the Fed sets rates and how to get riskfree rates in currencies where the government has default risk. I did mention, in passing, the possibility of negative riskfree rates and I do have a post on that: If you want to see my updated perspective on risk free rates, try my blog post from this week:: Some of this post covers what we will do next week in class, but it is still a good big picture perspective. Also, the post class test and solution for today are attached.