Base interest rate, spot rates and forward rates – the secure interest rate in the company assessment

Distributions and withdrawals from companies are not secure. The calculation interest rate at which these amounts paid out to the shareholders are discounted must demonstrate the same dimension of insecurity as the company to be assessed as per the condition of risk equivalence and thus the distributions and withdrawal potentials. The starting point for modelling the calculation interest rate is a secure interest rate. The quality of the interest rate with regards to the freedom from risk ensures that risk surcharges are not recorded multiple times when developing the calculation interest rate. In addition, the secure interest rate must have the same term, i.e. the period within which the interest rate is available must be the same as the duration of the company. Since companies are generally assessed under the assumption of an infinite existence, approximate solutions must be selected for the secure interest rate due to a lack of infinite interest contracts. The expensive modelling of calculation interest rates plays a role in the framework of the assessment of companies only in the scope of statutory and social contract-related assessment reasons, i.e. when determining objective company values.

In earlier decisions regarding public law-related settlement cases, the focus of case law referred to historical lending interest rates for long-term securities. The past 15 to 30 years of empirical data are thus incorporated into the calculation. Since the interest structure curve is propagated in IDW S1, a clear change in the case law has begun so that primarily the interest structure curve is referenced when deriving the base interest rate. Interest structure curves model the future interest progression on the basis of spot rats and thus accommodate the requirements of the future relevance of the company assessment. Spot rates represent the interest rate of zero bonds or hypothetical zero bonds for maturity brackets of 1 to 30 years. This information which exists on the market regarding interest is processed into interest structure curves using the Svensson function. In cases of normal investor behaviours, higher interest rates are offered or required for longer investment maturities than for short maturities. This results in the typical interest structure progression of an increasing interest curve with a decreasing threshold growth. Interest information for maturities of up to 30 years represent good approximate solutions for the required maturity equivalence. To simplify the practical company evaluation, via the target value search function in table calculation programmes, a uniform interest rate can be determined at which the projected distributions or withdrawals can be discounted. This interest rate then represents the base interest rate for determining the calculation interest rate. There is thus no correlation between the base interest rate in the BGB (German Civil Code) and the base interest rate of the company assessment. To avoid the interest rate information from being distorted, IDW and case law recommend determining an average base interest rate which can be determined from the uniform interest rate of the last three months prior to the assessment date. The three-month period finds a correlation when determining the average stock market price as the minimum value of the corporate law-related settlement. If a uniform interest rate is not used for discounting and instead the interest rates for the exact maturity are to be used, forward rates apply. These are determined based on spot rates and describe the interest rate valid for the term steps t up to t+1. Forward rates are required for precise phase discounting since this is the only way to take the consideration of the phase-related degree of debt as per marketing values into account for the discounting. The rounding method for the base interest rate by 0.25 percent points recommended by the IDW has partially established itself. A theoretical foundation for this is lacking however. To determine the base interest rate for the purposes of the company assessment, the BaseRateGuide from WOLLNY WP is available on the homepage http://www.en.wollnywp.de/. Base interest rates for assessment dates from 8/1/1997 to the respective current date can be viewed here.