This is an important question from Alex in the Ukraine about how to value a business in a business environment where government bonds are at 20%.  

"I live in Ukraine. Our stock market is an emerging market. And the issue. If a savings deposit yields 15% per year and bonds yield 16-24% should I increase my MARR - not 15% as well, such as 20%. And is it right?"

The MARR in Rule One investing is our Minimum Acceptable Rate of Return.  Its the amount we expect to make each year compounded over the life of the investment.  I use 15%.  

The rate of return on government bonds reflects the risk of the government defaulting and/or inflation. If Ukrainian government bonds are yielding 16% to 24%, that means there is either a high risk of default or massive inflation or both.

High yields of Ukrainian bonds for any reason do not mean we should increase the MARR to get the value right on a Ukrainian company. The correct MARR is 10%-12% over the 'risk-free' rate of return - typically over the US Treasuries rate of return.  It should be that rate for any company in the world.  If you are investing in Ukrainian businesses, you should still use Rule One criteria and not invest if the business does not meet the criteria.  This must be a business you know is going to be a good business 20 years from now. If you are buying businesses that don't meet that criteria, you are not doing Rule One investing.

A wonderful business in the Ukraine will have the same basic criteria of a wonderful business in the US. One of the most important features of a wonderful business is its ability to raise its prices with inflation. The reason you don't have to increase the MARR is to get the right value in an inflationary environment is that your estimated growth rate for earnings will take care of the inflation issue by including the inflation rate in the growth rate.  A company that would grow 10% a year in the US might grow its Ukrainian earnings at 25% a year.  The MARR stays the same.  The growth rate changes.

But what about the risk of Ukrainian default?  The default of the Ukrainian government on its bonds should not effect a wonderful business in the long run.  If it would, don't buy that business. It is not, by definition, 'wonderful'.

It is a world market. You can invest anywhere in anything. Pick only those things that meet the 4Ms regardless of what country the business is in.

That said, there is a benefit in raising the MARR. It makes the value of the business go down and that makes you pay less for the business. But that doesn't make the investment better. It just makes it cheaper. Sometimes that is enough to make the investment successful but usually if you are buying a bad business, paying less for it only means you lose less money.

Now go play