Methodology for Risk-free Discount Rates and CPI Assumptions for Accounting Valuation Purposes - May 2012 Review of Long-term Assumptions

Published 6 Jul 2012

The purpose of this paper is to document a review of the long-term assumptions that were originally set in the Methodology published July 2010.

While the long-term economic assumptions remain the same as in the original Methodology, the bridging assumption has been refined as a result of the May 2012 review. The bridging assumption bridges the end of the yield curve to the long-term rate and is now subject to a maximum slope, thereby lengthening the smoothing period automatically in extreme circumstances.

This methodology is not intended to apply to the valuation of traded securities.

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1. Introduction 1.1. Background and purpose 1.2. Approach 2. Long-term real risk-free discount rates 2.1. Introduction 2.2. Summary 2.3. Analysis 2.4. International developments 3. Long-term nominal risk-free discount rates 3.1. Introduction 3.2. Summary 3.3. Historical market yields on long-term New Zealand Government stock 3.4. International observations 3.5. Comparison to bank swap yields 4. Bridging the yield curve to the long-term rate 4.1. Introduction 4.2. Summary 4.3. Analysis 5. Long-term inflation 5.1. Introduction 5.2. Summary 5.3. Analysis	disc-rates-meth-rlea-may12.pdf (862 KB) pp. (2),i,23

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