« Hot News about Credit Cards
PAY ATTENTION TO YOUR CREDIT SCORE »
ss_blog_claim=81d899dc2d9f385794f0d158449ba309

Productivity at your daily life


  • Home
« Hot News about Credit Cards
PAY ATTENTION TO YOUR CREDIT SCORE »

Estimating the Risk-Free Rate

by Maestro

The starting point for the CAPM cost of equity estimate is rRF, the risk-free rate. There is really no such thing as a truly riskless asset in the U.S. economy. Treasury securities are essentially free of default risk, but nonindexed long-term T-bonds will suffer capital losses if interest rates rise, and a portfolio of short-term T-bills will provide a volatile earnings stream because the rate earned on T-bills varies over time. Since we cannot in practice find a truly riskless rate upon which to base the CAPM, what rate should we use? A recent survey of highly regarded companies shows that about two-thirds of the companies use the rate on long-term Treasury bonds.7

We agree with their choice, and here are our reasons:

1. Common stocks are long-term securities, and although a particular stockholdermay not have a long investment horizon, most stockholders do invest on a longtermbasis. Therefore, it is reasonable to think that stock returns embody longterminflation expectations similar to those reflected in bonds rather than theshort-term expectations in bills.

2. Treasury bill rates are more volatile than are Treasury bond rates and, most experts agree, more volatile than rs.

3. In theory, the CAPM is supposed to measure the expected return over a particular holding period. When it is used to estimate the cost of equity for a project, the theoretically correct holding period is the life of the project. Since many projects have long lives, the holding period for the CAPM also should be long. Therefore, the rate on a long-term T-bond is a logical choice for the risk-free rate.
In light of the preceding discussion, we believe that the cost of common equity is more closely related to Treasury bond rates than to T-bill rates. This leads us to favor T-bonds as the base rate, or rRF, in a CAPM cost of equity analysis. T-bond rates can be found in The Wall Street Journal or the Federal Reserve Bulletin. Generally, we use the yield on a 10-year T-bond as the proxy for the risk-free rate.

Taken From : Credit Repair by Attorneys Robin Leonard and Deanne Loonin

Related posts:

  1. Seven Free Productivity Tools To Increase Your Efficiency We are always attempting to gather the best and recent...
  2. CentriXia low cost low risk cloud based productivity tools The importance of productivity cannot be overstated. UK businesses...
  3. Exploring the World of Free Teaching Productivity Resources on the Web Companion vlog post to article, “Exploring the World of...

Related posts brought to you by Yet Another Related Posts Plugin.

Posted on Tuesday, May 19th, 2009 at 8:36 am and under Productivity category. |

Top Incoming Search :

Leave a Reply

  • Affordable email list products for all of your business needs.
  • Recent Posts

    • Giddyup Employee Engagement Meeting
    • Why Information Products Sell Like Hot Cakes Online
    • 3CX Unites CRM and PBX with the CRM Integration Module
    • Interview with The Author Samer Chidiac on Future TV
    • Motorola RAZR HD Multimedia Dock/Productivity Station Unboxing
    • What’s New in Bento 4 for Mac, iPhone, & iPad
    • Profiles Performance Indicator
    • Non-tangle Headphone Wrap
    • History of Apple Inc
    • Increasing Productivity with Remote Workers pt1
  • Stats



  • Archives

    • February 2012
    • January 2012
    • December 2011
    • November 2011
    • October 2011
    • September 2011
    • August 2011
    • July 2011
    • June 2011
    • May 2011
    • April 2011
    • March 2011
    • February 2011
    • January 2011
    • December 2010
    • November 2010
    • September 2010
    • August 2010
    • July 2010
    • June 2010
    • May 2010
    • April 2010
    • March 2010
    • February 2010
    • January 2010
    • December 2009
    • November 2009
    • October 2009
    • September 2009
    • August 2009
    • July 2009
    • June 2009
    • May 2009
    • April 2009
    • March 2009
    • February 2009
    • January 2009
    • December 2008
    • November 2008
    • October 2008
    • August 2008
    • March 2008
    • February 2008
    • January 2008
    • December 2007
    • November 2007
  • Categories

    • Genealogy (12)
    • Productivity (771)
    • Restaurant Industry (13)
    • Resumes Cover Letters (16)
    • Retail (20)
    • Risk Management (3)
    • Sales (23)
    • Sales Management (24)
    • Sales Teleselling (16)
    • Sales Training (18)
    • Security (9)
    • Small Business (5)
    • Solo Professionals (11)
    • Strategic Planning (19)
    • Team Building (10)
    • Top7 Or 10 Tips (17)
    • Venture Capital (21)
    • Workplace Communication (14)

Recent Posts
  • Giddyup Employee Engagement Meeting
    Saturday, February 4th, 2012
  • Why Information Products Sell Like Hot Cakes Online
    Thursday, February 2nd, 2012
  • 3CX Unites CRM and PBX with the CRM Integration Module
    Tuesday, January 31st, 2012
  • Interview with The Author Samer Chidiac on Future TV
    Friday, January 27th, 2012
  • Motorola RAZR HD Multimedia Dock/Productivity Station Unboxing
    Wednesday, January 25th, 2012
Categories
  • Genealogy (12)
  • Productivity (771)
  • Restaurant Industry (13)
  • Resumes Cover Letters (16)
  • Retail (20)
  • Risk Management (3)
  • Sales (23)
  • Sales Management (24)
  • Sales Teleselling (16)
  • Sales Training (18)
  • Security (9)
  • Small Business (5)
  • Solo Professionals (11)
  • Strategic Planning (19)
  • Team Building (10)
  • Top7 Or 10 Tips (17)
  • Venture Capital (21)
  • Workplace Communication (14)
About Me
    about me
    This is a example of 'about me'.You can edit this later by editing the "about.php" file in themes root directory.
Copyright © Productivity at your daily life | Support by Indonesia Java International Destination
Theme by Inspired Spark | Cheap Web Hosting