4.4  Market Risk Premium

There are many different ways of measuring market returns and there is a considerable debate over the calculation of the Market Risk Premium.

For the purposes of these guidelines, a Market Risk Premium of 6% will usually be employed consistent with current regulatory practice in Australia. Typically the Market Risk Premium is a 'real' rate and does not include an inflation adjustment. However since the adjustment for inflation is generally made within the Risk Free Rate, the same Market Risk Premium of 6% can be used for deriving both real and nominal discount rates.

As a nominal Risk Free Rate is used for the purposes of this guidance, the Market Risk Premium will also be applied on a nominal basis.

The Market Risk Premium will be reviewed from time to time and changed if considered necessary.