Which of the following is NOT listed as a method to derive the discount rate?

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Multiple Choice

Which of the following is NOT listed as a method to derive the discount rate?

Discount rate derivation focuses on how to reflect risk and the perspective of the user. In this context, three practical methods are commonly recognized: using a risk-free rate, constructing a rate from the expected return on a chosen portfolio that matches the cash-flow risk, and adopting a rate specified by another party (such as a client) when a specific rate is requested. The market-based approach, while it involves market data, isn’t listed as a separate method for deriving the discount rate in this material. It’s typically used to inform the other methods rather than stand alone as its own method. Therefore, market-based approach is the one not listed.

Discount rate derivation focuses on how to reflect risk and the perspective of the user. In this context, three practical methods are commonly recognized: using a risk-free rate, constructing a rate from the expected return on a chosen portfolio that matches the cash-flow risk, and adopting a rate specified by another party (such as a client) when a specific rate is requested. The market-based approach, while it involves market data, isn’t listed as a separate method for deriving the discount rate in this material. It’s typically used to inform the other methods rather than stand alone as its own method. Therefore, market-based approach is the one not listed.

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