Remove Corporate Finance Remove Risk Premium Remove Risk-free Rate
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The Price of Risk: With Equity Risk Premiums, Caveat Emptor!

Musings on Markets

If you have been reading my posts, you know that I have an obsession with equity risk premiums, which I believe lie at the center of almost every substantive debate in markets and investing. That said, I don't blame you, if are confused not only about how I estimate this premium, but what it measures.

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In Search of Safe Havens: The Trust Deficit and Risk-free Investments!

Musings on Markets

In every introductory finance class, you begin with the notion of a risk-free investment, and the rate on that investment becomes the base on which you build, to get to expected returns on risky assets and investments. What is a risk free investment? Why does the risk-free rate matter?

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Data Update 4 for 2022: Risk = Danger + Opportunity!

Musings on Markets

The other is the dangerous notion that measuring risk is the same as managing that risk and, in some cases, the even more insane view that it removes that risk. In corporate finance, this takes the form of a hurdle rate , a minimum acceptable return on an investment, for it to be funded.

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Data Update 3 for 2023: Inflation and Interest Rates

Musings on Markets

The rise in rates transmitted to corporate bond market rates, with a concurrent rise in default spreads exacerbating the damage to investors. That view has never made sense, because central banking power over rates is at the margin, and the key fundamental drivers of rates are expected inflation and real growth.

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Data Update 1 for 2024: The data speaks, but what does it say?

Musings on Markets

In my corporate finance class, I describe all decisions that companies make as falling into one of three buckets – investing decisions, financing decision and dividend decisions. Equity Risk Premiums 2. Ratings & Spreads 2. Tax rates 4. Financing Flows 5. Buybacks 2. Lease Effect 2.

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Data Update 3 for 2024: Interest Rates in 2023 - A Rule-breaking Year!

Musings on Markets

Note also that during 2022 and 2023, the movements in these government bond rates mimic the US treasuries, rising strongly in 2022 and declining or staying stable in 2023. Corporate Borrowing As riskfree rates fluctuate, they affect the rates at which private businesses can borrow money.

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Marking Time: A new year, a fresh semester and its class time!

Musings on Markets

Corporate Finance : Corporate finance is the development of the first financial principles that govern how to run a business. It is that mission that makes corporate finance the ultimate big picture class, one that everyone (entrepreneurs, investors, analysts, business observers) should take.