Why a discount rate matters and how CAPM is used
Valuing an equity requires a discount rate that converts future cash flows into a present value. vnvalue uses the capital asset pricing model (CAPM) to estimate the required return on equity, because CAPM links that required return to three observable or estimable components: a risk-free rate, an equity risk premium, and a measure of systematic risk for the stock, beta.
CAPM produces the cost of equity. In our WACC framework the cost of equity is combined with a cost of debt and the company's capital structure to obtain a weighted average cost of capital. The note below explains why each parameter in CAPM takes the specific value we use for Vietnamese stocks.
The risk-free rate
The risk-free rate is the anchor for any market discount rate. For Vietnamese stocks vnvalue uses the Vietnam 10-year government bond yield as the risk-free input because it is the closest long-duration, low-credit-risk benchmark available in the local market.
The figure we use for the risk-free rate is 4.36%, taken from the Vietnam 10-year government bond yield for April 2026. Using a domestic government yield aligns the discount rate's currency and duration with the cash flows being valued.
Equity risk premium and country risk premium
vnvalue starts from a mature-market implied equity risk premium and then adds a country risk premium to reflect Vietnam's additional sovereign and market risk. The mature-market input is 4.38%, taken from Damodaran's implied ERP series for March 2026. This represents the premium investors demand in developed markets over the risk-free rate.
For the Vietnam-specific uplift we apply a country risk premium of 2.75%. This number is an estimate derived from a sovereign default spread aligned with Moody's Ba2 / Fitch BB+ and adjusted for equity volatility. The country premium is therefore an additive term that recognises higher sovereign and market uncertainty relative to mature markets.
How we estimate beta
Beta measures a stock's systematic volatility relative to the market. vnvalue estimates beta by regressing a stock's returns against returns on the VNINDEX. Using the domestic index keeps the beta grounded in local market behaviour rather than importing a beta from a foreign market where correlations and market structure differ.
When a stock's price history is too short or the regression is insufficiently robust, we use sector median betas as a fallback. For the bank sector the fallback beta is 0.97, the median of 24 VNINDEX regressions. For the securities sector the fallback beta is 1.18, the median of 37 VNINDEX regressions.
WACC composition and practical implementation
In practice vnvalue calculates the cost of equity with CAPM using the risk-free rate plus the mature-market equity risk premium and the Vietnam country premium, multiplied by the stock-specific or fallback beta. That equity cost is combined with an observable cost of debt and the company's capital structure to derive WACC.
Users should note we do not invent unobserved inputs. The debt cost is taken from a company's reported financing or market yields when available, and capital structure is taken from reported balance sheet figures at the chosen valuation date.
Limits and the need for periodic review
Several limitations apply. The country risk premium is an estimate rather than an observable market price; it depends on sovereign spreads and an equity volatility adjustment and therefore is inherently model based. The sector beta figures are fallbacks used only when a stock's own regression has too little data, so they are a proxy rather than a direct measurement.
All three key parameters move with the market and should be reviewed periodically. The risk-free rate follows government yields, the implied ERP varies with mature-market conditions, and the country premium and betas change as sovereign spreads and market correlations change. We state these limits alongside our inputs so readers understand what is measured and what is estimated.