Discount rates
The following articles are available on our web site, under the topic “Discount rates”:
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What is a "Discount Rate"?
- Spring 1996 Expert Witness (1.1)
- In this article Christopher Bruce provides a simple introduction to a concept which litigators must use every day - the discount rate, or "real rate of interest." This article is the first in a series which will discuss the underlying concepts employed in the derivation of the lump sum values of future streams of losses.
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Selecting the Discount Rate
- Autumn 1996 Expert Witness (1.3)
- This article completes a two-part series on the discount rate. In this issue, we review a number of different methods for estimating the future discount rate, explain why we prefer one of them over the others, and apply that method to the selection of a 4.25 percent rate.
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Selecting the Discount Rate
- Autumn 2000 Expert Witness (5.3)
- In this article we begin by providing clear definitions of a number of fundamental concepts. These include: real interest rate; nominal interest rate; discount rate; real return bonds; and core rate of inflation. We then summarise the recent statistical data for various measures of inflation and interest rates in Canada. Finally, we use those data to calculate the "real interest" rate and to forecast a long-run discount rate. We conclude from this analysis that that rate appears to be 4.0 percent. However, as there has been some recent volatility in interest rates, we propose to revisit our forecast a year from now.
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Ontario's Mandated Discount Rate -
Rule 53.09(1)
- Summer 2000 Expert Witness (5.3)
- In this article Chris Bruce discusses the recent changes to Ontario’s mandated discount rate – as specified in their Rule 53.09(1).
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Selecting the Discount Rate –
An Update
- Winter 2001 Expert Witness (6.4)
- In this article the consultants at Economica have combined to review the most recent information concerning the “discount rate;” that is, the rate of interest at which plaintiffs are assumed to invest their award.
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Selecting the Discount Rate –
An Update
- Spring 2003 Expert Witness (8.1)
- This article extends the work done by us in issues 5(3) and 6(4) of The Expert Witness, we conclude that it would be appropriate to revise our existing 2½ and 3½ percent two-part forecast of real interest rates. We propose to use a rate of 2¼ percent for the first five years of all calculations. For all subsequent years we propose to use a rate of 3¼ percent.
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The Discount Rate Revisited
- Summer 2005 Expert Witness (10.2)
- In this article we review the recent evidence – both statistical and theoretical – concerning the discount rate (or real rate of interest). We review a number of different interest rates for each quarter since 1995 and find that every series has trended downward virtually continuously over the entire period. We then review the theoretical arguments that have been put forward to explain why this trend has been observed; and ask whether it is better to base a forecast of future rates of interest on the rates that are currently being observed or on averages of historical rates. We conclude that it would be inappropriate to rely on historical figures and instead we recommend use of multiple rates, based on the rates currently available for a variety of short- and long-term government bonds.
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The Discount Rate Revisited (Summer
2006)
- Summer 2006 Expert Witness (11.2)
- In this article Derek Aldridge reports on our latest survey of discount rates, and outlines the revisions we have made to our standard assumptions. We conclude that some small changes to our short-term discount rate assumption are warranted, though we have not changed our assumptions concerning long-term rates. The overall impact on our calculations will be negligible in most cases.
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Forecasting the long-term interest
rate on Government of Canada bonds:
“market-based” versus
“conservative” investment
- Spring 2007 Expert Witness (12.1)
- In the article Christopher Bruce examines a subtle issue relating to interest rates. He explains the difference between the interest rates realised by buying bonds and holding them to maturity, and selling and re-buying before maturity. These approaches will result in different estimates of historical interest rates.
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The Discount Rate Revisited (Spring 2008)
- Spring 2008 Expert Witness (13.1)
- This article reports on our latest survey of discount rates. We conclude that no changes to our existing discount rate assumptions are warranted, though a reduction in our long-term rate may be necessary in the future if the observed long-term rates remain significantly lower than our assumed rate.