What is the impact of the terminal rate sitting at 5% in terms of market valuation. I get that it's the rate that banks lend to each other overnight and that it increases lending costs. But how would I be able to gauge how much value this cuts off of from cash flows in say a DCF analysis for companies? What I'm trying to get at is that the risk free rate is a part of the CAPM model and is an input for doing DCF analysis and I was wondering that if we know the target rate is 5%, could we predict the risk free rate so we could see the impact on valuations? Does this question make sense or am I going about it the wrong way?
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