Musings on Markets

FEBRUARY 10, 2021

That additional premium, which I call a country risk premium , when added to the US ERP, gives me an equity risk premium for the country in question. Download country ERPs What does this mean? Cost of equity in US $ for German project = 1% + 1.1 4.72%) = 6.19% Cost of equity in US $ for a Nigerian project = 1% + 1.1

Risk-free Rate 52

Risk-free Rate Risk Premium Start-ups Equity 52

Musings on Markets

AUGUST 5, 2023

In short, the expected return on a risky investment can be constructed as the sum of the returns you can expect on a guaranteed investment, i.e., a riskfree rate, and a risk premium, which will scale up as risk increases. The risk premium that you demand has different names in different markets.

Risk Premium 98

Risk Premium Equity Start-ups Treasury 98

Andrew Stolz

JANUARY 28, 2022

Download the full report as a PDF. Historically, Japan has a very low risk-free rate. Download the full report as a PDF. Highlights: Slowing oil consumption could result in declining revenue. Ramp-up of CAPEX necessary to ensure longevity. Attractive dividend yield could rise to 2x Japanese average.

Dividends 52

Dividends Risk-free Rate Net Debt Equity 52

Musings on Markets

FEBRUARY 8, 2022

At the start of 2022, the ten sectors (US) with the highest and lowest relative risk (unlettered betas), are shown below. In my last two posts, I noted that the prices of risk have drifted down in markets, with both equity risk premiums and default spreads decreasing through 2021.

Risk Premium 92

Risk Premium Beta Start-ups Equity 92

Andrew Stolz

JANUARY 28, 2022

Download the full report as a PDF. Russia has a massively high risk-free rate of 10%. Download the full report as a PDF. Highlights: Bright future of natural gas as a transition fuel. If Europe holds back Gazprom expansion, pivot to Asia. Domestic market still not fully penetrated yet. Value estimate – Gazprom.

Risk-free Rate 52

Risk-free Rate Net Debt Start-ups Marketability 52

Musings on Markets

JANUARY 24, 2024

A Ride to Nowhere - US Treasury Rates in 2023 It was undoubtedly a relief for bond market investors to see US treasury markets settle down in 2023, though there were bouts of volatility, during the course of the year.

Treasury 52

Treasury Risk Premium Start-ups Risk-free Rate 52

Musings on Markets

JANUARY 5, 2024

This is a large dataset and can take a while to download) Data Timing & Currency Effects In computing the statistics for each of the variables, I have one overriding objective, which is to make sure that they reflect the most updated data that I have at the time that I compute them, which is usually the first week of January. Be patient.

Dividends 106

Dividends Risk Premium Equity Book Value 106

Musings on Markets

MAY 6, 2022

Since 2020, though, inflation has become a key story line in almost every post that I write about the overall market, and I have had multiple posts just on the topic.

Risk Premium 103

Risk Premium Treasury Start-ups Equity 103

Musings on Markets

FEBRUARY 11, 2023

The conventional practice, when estimating risk free rates, has been to use the government bond rate in the local currency, if available, as the riskfree rate in that currency, and that practice is wrong when markets perceive default risk in the sovereign and build that into the government bond rate.

Risk Premium 97

Risk Premium Start-ups Equity Marketability 97

Musings on Markets

NOVEMBER 9, 2021

Risk : When I valued Tesla last in early 2020, I used a cost of capital of 7%, reflecting a risk free rate of 1.75% and an equity risk premium of 5.2% for mature markets.

Start-ups 101

Start-ups Dividends Marketability Market Capitalization 101

Musings on Markets

FEBRUARY 2, 2023

To fill in the missing pieces, I redid the valuation picture, adding the revenue growth rate, by year: Download spreadsheet As you look at the sheet, it is worth emphasizing a few estimation details that you may have missed in my original post: First, the revenue growth rate , at least for me, is a means to an end, not an end in itself.

Start-ups 99

Start-ups Risk-free Rate Market Capitalization Marketability 99

Musings on Markets

FEBRUARY 15, 2023

the returns you can make on investments of equivalent risk, and that game became a lot more difficult to win in 2022. To explore differences in profit margins across industry groups, I broke stocks down into 94 industry groups, and sorted industries, based upon operating margin, from highest to lowest.

Start-ups 52

Start-ups Equity Risk Premium Risk-free Rate 52

Musings on Markets

JANUARY 26, 2023

As I noted in my last post , rising risk free rates and equity risk premiums have pushed up the costs of equity for all companies, and Tesla is not only no exception but is perhaps even more exposed as an above-average risk company.

Start-ups 99

Start-ups Marketability Risk Premium Equity 99

Musings on Markets

JANUARY 12, 2021

Last week, was my data week, where I download and analyze data on all publicly traded companies, listed anywhere in the world, and I will post extensively on what the numbers look like after a most tumultuous year. Investors need to reassess their expected returns to reflect risk free rates & current ERP & default spreads.

Corporate Finance 52

Corporate Finance Start-ups Finance Marketability 52

Musings on Markets

JANUARY 19, 2022

In a post at the start of 2021 , I argued that while stocks entered the year at elevated levels, especially on historic metrics (such as PE ratios), they were priced to deliver reasonable returns, relative to very low risk free rates (with the treasury bond rate at 0.93% at the start of 2021).

Risk Premium 99

Risk Premium Risk-free Rate Start-ups Equity 99

Musings on Markets

MARCH 25, 2021

for the year are at war with its concurrent promise to keep rates low; after all, adding those numbers up yields a intrinsic risk free rate of 8.7%. The Stocks Story As treasury rates have risen in 2021, equity markets have been surprisingly resilient, with stocks up during the first three months.

Equity 52

Equity Risk-free Rate Treasury Start-ups 52

Musings on Markets

JANUARY 28, 2024

Using the updated numbers for the risk free rate (in US dollars), the equity risk premiums (for the US and the rest of the world) and the default spreads for debt in different ratings classes, I computed the cost of capital for the 47,698 companies in my data universe, at the start of 2024.

Risk Premium 121

Risk Premium Beta Start-ups Equity 121

Musings on Markets

JULY 27, 2022

The effects of inflation show up first as higher risk free rates , across currencies, and next in higher risk premiums, with both equity risk premiums and default spreads rising.

Risk Premium 98

Risk Premium Start-ups Equity Marketability 98

Musings on Markets

JANUARY 8, 2022

Risk free Rates : While the US treasury bond rate is widely reported, I contrast its actual value with what I call an intrinsic measure of the rate, computed by adding the inflation rate to real growth each year at this link. You can find the data to download on my website , at this link.

Risk Premium 99

Risk Premium Start-ups Market Capitalization Corporate Finance 99

Musings on Markets

JULY 25, 2023

Suffice to say that if you are operating a business in a part of the world that is contested by two countries, your risk levels are in the danger zone, no matter where in the world you are.) Download spreadsheet with data You will notice that there are countries that are not rated (NR) that have equity risk premiums attached to them.

Risk Premium 52

Risk Premium Equity Start-ups Risk-free Rate 52

Musings on Markets

JANUARY 17, 2025

Download historical data Across the 97 years that I have estimated annual returns, stocks have had their ups and downs, delivering positive returns in 71 years and negative returns in the other 26 years. Historical Context To assess stock returns in 2024, it makes sense to step back and put the year's performance into historical perspective.

Equity 129

Equity Risk Premium Treasury Start-ups 129

Musings on Markets

JANUARY 28, 2025

At the start of 2024 , the ten-year treasury rate stood at 3.88%, unchanged from its level a year prior, but the 3-month treasury bill rate had climbed to 5.40%. Data Update 4 for 2025: Interest Rates, Inflation and Central Banks!

Banking 71

Banking Treasury Risk Premium Start-ups 71

Musings on Markets

FEBRUARY 6, 2025

I am no expert on exchange rates, but learning to deal with different currencies in valuation is a prerequisite to valuing companies. and an augmented premium for countries that do not have Aaa ratings, with the additional country risk premium determined by local currency sovereign ratings.

Risk Premium 69

Risk Premium Start-ups Enterprise Value Equity 69