Musings on Markets

FEBRUARY 11, 2023

In this section, I will begin measures of country default risk, including sovereign ratings and CDS spreads, before moving to more expansive measures of country risk before concluding with measures of equity risk premiums for countries, a pre-requisite for estimating the values of companies with operations in those countries.

Risk Premium 97

Risk Premium Start-ups Equity Marketability 97

Musings on Markets

AUGUST 15, 2023

Expected returns for Risky Investments : The risk-free rate becomes the base on which you build to estimate expected returns on all other investments. For instance, if you read my last post on equity risk premiums , I described the equity risk premium as the additional return you would demand, over and above the risk free rate.

Risk-free Rate 98

Risk-free Rate Risk Premium Treasury Start-ups 98

Musings on Markets

MAY 6, 2022

Equity Risk Premium Path : The equity risk premium of 5.24%, estimated at the start of May 2022, is at the high end of historical equity risk premiums , but we have seen higher premiums, either in crises (end of 2008, first quarter of 2020) or when inflation has been high (the late 1970s).

Risk Premium 103

Risk Premium Treasury Start-ups Equity 103

Global Finance

MARCH 5, 2025

During his campaign, Argentine President Javier Milei promised to close the countrys central bank and adopt the dollar as the countrys currency. The main attraction of full dollarization is the elimination of the risk of a sudden, sharp devaluation of the countrys exchange rate, the IMF writers point out. from 2004-2007.

Banking 59

Banking Finance Risk Premium Marketability 59

Musings on Markets

JULY 17, 2023

Exacerbating the pain, corporate default spreads rose during the course of 2022: While default spreads rose across ratings classes, the rise was much more pronounced for the lowest ratings classes, part of a bigger story about risk capital that spilled across markets and asset classes.

Marketability 98

Marketability Risk Premium Start-ups Treasury 98

Musings on Markets

JANUARY 30, 2023

Just as rising equity risk premiums push up the cost of equity, rising default spreads push up the cost of debt of companies, with the added complication of higher default risk for those companies that had pushed to the limits of their borrowing capacity in a low interest-rate environment.

Treasury 97

Treasury Start-ups Risk Premium Equity 97

Valutico

FEBRUARY 27, 2024

For central banks like the Federal Reserve, it helps control the economy. They set this rate to affect how much money moves through banks and influences short-term interest rates. We are going to focus on how discount rates are used in the context of investment, rather than in the context of central banks.

Discounted Cash Flow 52

Discounted Cash Flow Risk Premium Risk-free Rate Beta 52

Reynolds Holding

OCTOBER 22, 2024

In leveraged buyouts (LBOs), a private equity (PE) sponsor acquires controlling ownership of a target company, typically by using a significant amount of bank loans. In a new study, we focus on a controversial issue: Many PE sponsors have prior relationships with law firms representing banks in LBO loan negotiations.

Equity 45

Equity Risk Premium Banking Private Equity Firm 45

ThomsonReuters

MAY 6, 2021

For instance, assume a bank is performing a discounted cash flow analysis for a mortgage. If a bank expects a borrower to make mortgage payments before the contractual due dates, the prepayments would lead to a lower end value in the discounted cash flow calculation than if the payments were made per the contract terms.

Discounted Cash Flow 52

Discounted Cash Flow Risk Premium Risk-free Rate Intangible Assets 52

Musings on Markets

JANUARY 27, 2022

While we have increasingly given central banks primacy in discussions of interest rates, it remains my view that markets set rates, and while central banks can nudge market expectations, they cannot alter them. Connecting this linkage to the discussion of US inflation in the prior sections, here are the takeaways.

Risk-free Rate 99

Risk-free Rate Treasury Price to Book Start-ups 99

Simply Treasury

AUGUST 2, 2022

The idea is not new to encourage companies to increase their capitalization and reduce their bank debt (partly through more recourse to the capital market - CMU project). The rate would be calculated based on a 10-year "risk-free interest" rate depending on the currency, increased by a 1% risk premium (1.5%

Equity 52

Equity Risk Premium Banking Finance 52

Musings on Markets

JANUARY 9, 2021

The second is that there are great (and free) sources for macro economic data, ranging from the Federal Reserve (FRED) to the World Bank and I don’t see the point of replicating something that they already do well.

Risk Premium 52

Risk Premium Market Capitalization Equity Start-ups 52

Brian DeChesare

MAY 3, 2023

But people who aim for investment banking roles are very much into those bells and whistles, so questions about the DDM and other “exotic” methodologies began rolling in. To be fair, in some industries – like commercial banks and insurance within FIG – the DDM is a core valuation methodology.

Dividends 64

Dividends Terminal Value Enterprise Value Equity 64

Musings on Markets

JANUARY 31, 2024

In my last three posts, I looked at the macro (equity risk premiums, default spreads, risk free rates) and micro (company risk measures) that feed into the expected returns we demand on investments, and argued that these expected returns become hurdle rates for businesses, in the form of costs of equity and capital.

Equity 83

Equity Book Value Start-ups Corporate Finance 83

Appraisal Rights

JUNE 5, 2017

Further to our prior post about Delaware’s two new appraisal decisions, SWS Group was a small, struggling bank holding company that merged on January 1, 2015 into one of its own substantial creditors, Hilltop Holdings. Stockholders of SWS received a mix of cash and Hilltop stock worth $6.92 at closing. below the merger price.

Beta 40

Beta Risk Premium Capital Structure Discounted Cash Flow 40

Musings on Markets

MAY 24, 2021

In a sign of how volatile inflation expectations have been over the last year, I looked at the probabilities that the Federal Reserve Bank of St. Consequently, as inflation increases, equity risk premiums will tend to increase. Louis estimates for inflation rates exceeding 2.5%

Treasury 56

Treasury Start-ups Risk Premium Price to Book 56

Andrew Stolz

MARCH 20, 2020

A firm borrows from banks or bondholders and it has to pay the interest. The formula implies the return an investor expects from a risk-free investment plus the return from the stock in relation to market volatility. The market risk premium is calculated from a market rate of return less a risk-free rate.

Beta 52

Beta Capital Structure Risk-free Rate Weighted Average Cost of Capital 52

Equilest

MARCH 17, 2022

We note that the higher the expected rate (in other words, the greater the risk is perceived as necessary, to the point of requiring a substantial "risk premium"), the lower the multiple that will apply and therefore the lower valuation: we buy cheaper which is less safe. 11% per year. 10% per year. around 1.5%). -

Business Valuation 40

Business Valuation EBIT Discounted Cash Flow EBITDA 40

Appraiser Newsroom

JUNE 4, 2024

Dr. Everett is the author of the children’s financial literacy thriller Toby Gold and the Secret Fortune, which incorporates such financial topics as saving, investing, banking, entrepreneurship, interest rates, return on investment, and net worth. Everett He holds a Ph.D. in Quantitative Economics from Tufts University. Petersburg, Russia.

Business Valuation 59

Business Valuation Intangible Assets Appraisal Finance 59

Musings on Markets

JANUARY 27, 2021

In my last post , I described the wild ride that the price of risk took in 2020, with equity risk premiums and default spreads initially sky rocketing, as the virus led to global economic shutdowns, and then just as abruptly dropping back to pre-crisis levels over the course of the year. against developed market currencies.

Start-ups 52

Start-ups Marketability Equity Treasury 52

Musings on Markets

JANUARY 19, 2022

In computing this implied equity risk premium for the S&P 500, I start with the dividends and buybacks on the stocks in the index in the most recent year (which is known) and assume that they grow at the rate that analysts who follow the index are projecting for the next five years.

Risk Premium 99

Risk Premium Risk-free Rate Start-ups Equity 99

Musings on Markets

JULY 1, 2022

And Consequences If you are wondering why you should care about risk capital's ebbs and flows, it is because you will feel its effects in almost everything you do in investing and business. The 2008 banking and market crisis caused a drop of almost 50% in 2009, and it took the market almost five years to return to pre-crisis levels.

Marketability 100

Marketability Risk Premium Start-ups Equity 100

Musings on Markets

JULY 25, 2023

Investors in Saudi Arabia are still exposed to significant risks from political upheaval or unrest, and may prefer a more comprehensive measure of country risk. For three decades, I have wrestled with measuring this additional risk exposure and converting that measurement into an equity risk premium, but it remains a work in progress.

Risk Premium 52

Risk Premium Equity Start-ups Risk-free Rate 52

Musings on Markets

MARCH 19, 2022

The overriding message in all of this data is that Russia/Ukraine war has unleashed fears in the bond market, and once unleashed that fear has pushed up worries about default and default risk premia across the board.

Start-ups 100

Start-ups Risk Premium Equity Market Capitalization 100

Musings on Markets

FEBRUARY 16, 2024

Investors will either see more relative risk (or beta) in these companies, if the risks affect an entire sector, or in equity risk premiums, if they are market-wide. Applications : My argument for using implied equity risk premiums is that they are dynamic and forward-looking. at the end of 2007 to 0.85

Risk Premium 78

Risk Premium Start-ups Beta Marketability 78

Musings on Markets

FEBRUARY 27, 2023

Note that this framework applies for all businesses, from the smallest, privately owned businesses, where debt takes the form of bank loans and even credit card borrowing and equity is owner savings, the largest publicly traded companies, where debt can be in the form of corporate bonds and equity is shares held by public market investors.

Equity 52

Equity EBITDA Start-ups Net Debt 52

Musings on Markets

MARCH 28, 2022

If these ESG revisionists are to be believed, if companies had adopted ESG early enough, there would have been no banking crisis in 2008, and if investors had screened stocks for ESG quality, they would not have lost money in the corporate scandals and meltdowns of the last decade.

Start-ups 119

Start-ups Alpha Marketability Risk Premium 119

Musings on Markets

MARCH 25, 2021

The second and more powerful factor is that the reason that a central bank is able to signal to markets, only if it has credibility, since the signal is more about what the Fed sees, using data that only it might have, about inflation and real growth in the future. Risk premiums No effect or even a decrease.

Equity 52

Equity Risk-free Rate Treasury Start-ups 52

Musings on Markets

JULY 24, 2024

After the 2008 market crisis, I resolved that I would be far more organized in my assessments and updating of equity risk premiums, in the United States and abroad, as I looked at the damage that can be inflicted on intrinsic value by significant shifts in risk premiums, i.e., my definition of a crisis.

Risk Premium 78

Risk Premium Equity Start-ups EBITDA 78

Musings on Markets

JANUARY 28, 2025

It was an interesting year for interest rates in the United States, one in which we got more evidence on the limited power that central banks have to alter the trajectory of market interest rates. We started 2024 with the consensus wisdom that rates would drop during the year, driven by expectations of rate cuts from the Fed.

Banking 71

Banking Treasury Risk Premium Start-ups 71

Musings on Markets

MAY 3, 2025

The concerns about central banking independence that triggered the surge in the US sovereign CDS spread also played out in currency markets, where the US dollar, already weakened in the first quarter, continued its decline in April. In parallel, the VIX soared in the first few days of the month to peak at 52.33

Marketability 96

Marketability Start-ups Treasury Risk Premium 96

Musings on Markets

FEBRUARY 23, 2025

The table below computes debt to capital ratios, in book and market terms, by sector and sub-region: I would begin by separating the financial sector from the rest of the market, since debt to banks is raw material, not a source of capital. Data Update 4 for 2025: Interest Rates, Inflation and Central Banks!

Equity 78

Equity EBITDA Risk Premium Gross Debt 78

Musings on Markets

APRIL 20, 2025

Instead, you will have to revalue the company, with adjustments to expected cash flows and risk premiums, given the crisis, and if that value exceeds the price, you should buy the stock. Contrarian Investing: The Psychological Tests! In the abstract, it is easy to understand the appeal of contrarian investing.

Start-ups 137

Start-ups Price to Book Marketability Equity 137

Musings on Markets

MARCH 15, 2025

Thus, my estimates of equity risk premiums, updated every month, are not designed to make big statements about markets but more to get inputs I need to value companies. In the table below, I show my estimates of the implied equity risk premium for the S&P 500 at the start of every month, since January 2024, and on March 14, 2025.

Start-ups 132

Start-ups Risk Premium Marketability Equity 132

Reynolds Holding

MARCH 25, 2025

Healy before the Subcommittee on Banking and Currency on Wagner-Lea Act, S. Investment companies have been compelled to finance banking clients of the insiders and companies in which they were personally interested. at 25) and they hold more of their wealth in regulated funds, as opposed to bank products, than Europe or Japan ( id.

Corporate Finance 45

Corporate Finance Finance Banking Marketability 45

Equidam

APRIL 22, 2025

2] Startups typically lack significant historical financial data, often operate with negative profits initially, rely heavily on private equity or venture capital rather than traditional bank loans, and face a much higher risk of failure. [1] This premium rises when perceived market risk increases. [27] 2] [15] [17].

Discounted Cash Flow 52

Discounted Cash Flow Marketability Risk Premium Start-ups 52

Equidam

APRIL 22, 2025

10] , [23] , [2] Discount Rate: The rate used to discount future cash flows is typically the cost of equity, calculated via the Capital Asset Pricing Model (CAPM): Cost of Equity = Risk-Free Rate + Beta * Market Risk Premium. [23] 23] Risk-Free Rate: Tied to government bond yields (e.g.,

Discounted Cash Flow 64

Discounted Cash Flow Terminal Value Marketability EBITDA 64