Musings on Markets

JULY 13, 2022

Country Risk: Currency and Cost of Capital As a final part to this post, to see the shifts in country risk that we have seen in 2022, let’s start with an assessment of risk free rates.

Risk Premium 103

Risk Premium Risk-free Rate Start-ups Equity 103

Andrew Stolz

AUGUST 5, 2020

It helps an investor understand what to expect to earn in relation to the risk-free rate and the market return. CAPM assumes that the minimum a rational investor would earn is the risk-free rate by buying the risk-free asset. How Do You Calculate the Capital Asset Pricing Model? E(r) = Rf + ??(Rm

Risk-free Rate 52

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

Exit Strategy

FEBRUARY 2, 2022

The Risk Free Rate – Part 1 of 5 One of the most important inputs surrounding the valuation of the business is the discount rate that is used in the analysis. This discount rate is the expected rate of return on the subject interest which in most cases is the equity in the value of […].

Risk-free Rate 52

Risk-free Rate Equity Business Valuation 52

Valutico

MAY 28, 2025

Weve enhanced the standalone Cost of Capital step with updated chartsnow including visuals for the Cost of Equity premium, Spread over Risk-Free Rate, and Debt/Equity ratio, among others. Youll also find new options for setting the Risk-Free Rate, Spread over Risk-Free Rate, and Tax Rate.

Risk-free Rate 52

Risk-free Rate EBIT Equity Enterprise Value 52

IVSC

JUNE 12, 2023

She was also a contributing author to the chapter "Risk-Free Rate" in the fifth edition. She has authored a chapter titled, "Cost of Capital for Divisions and Reporting Units," which is included in the fourth and fifth editions of the textbook: Cost of Capital: Applications and Examples, by Shannon Pratt and Roger Grabowski.

Risk-free Rate 130

Risk-free Rate Intangible Assets Appraisal Business Valuation 130

Andrew Stolz

AUGUST 5, 2020

In other words, the cost of equity is the rate of returns a firm pays to its shareholders. Risk-free rate . The systematic risk of the security (Beta). The growth rate of dividends . Where R(e) = expected return on investment, Rf = risk-free rate, Rm = expected return of the market, and ??

Equity 52

Equity Risk-free Rate Dividends Beta 52

Andrew Stolz

AUGUST 6, 2020

The expected return on an asset is determined by the risk-free rate of return with the addition of the asset’s beta to each macroeconomic factor that impacts the return on the asset multiplied by the risk premium of those factors. Inflation rate: ß = 0.6, The risk-free rate is 5%. 1 + RP1 + ??2+

Risk-free Rate 52

Risk-free Rate Risk Premium Beta Marketability 52

Brian DeChesare

AUGUST 31, 2022

The risk-free rate is higher – because investors benefit from “delaying” their eventual purchase of the underlying shares when they earn higher interest elsewhere. The risk-free rate and time to maturity also affect the Liability component (and other factors, such as the company’s credit quality, play a role).

Banking 89

Banking Risk-free Rate Equity Start-ups 89

ThomsonReuters

MAY 6, 2021

The Codification often provides guidance on how to select a discount rate for a particular area of accounting. The Codification may require the use of a risk-free rate in some places and a risk-adjusted rate in others. Recent events have also impacted the components of the discount rate.

Discounted Cash Flow 52

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

Valutico

FEBRUARY 27, 2024

The discount rate effectively encapsulates the risk associated with an investment; riskier investments attract a higher discount rate. Different types of discount rates such as risk-free rate, cost of equity, or cost of debt, are used contextually in financial analysis.

Discounted Cash Flow 52

Discounted Cash Flow Risk Premium Risk-free Rate Beta 52

Musings on Markets

JANUARY 20, 2021

If, on the other hand, investors are risk neutral, the price of risk will be zero, and investors will buy risky business, stocks and other investments, and settle for the risk free rate as the expected return. It is only fair that I go first.

Risk Premium 52

Risk Premium Risk-free Rate Equity Dividends 52

IVSC

APRIL 26, 2024

Monetary policy across major markets, including the pace and timing of interest rate cuts by major central banks will have a material impact on risk-free rates, a key input for valuations across multiple asset classes.

Banking 130

Banking Finance Risk-free Rate Technology 130

Musings on Markets

FEBRUARY 10, 2021

Going back to the start of this section, a company (say Ford) would require a higher cost of equity for a Nigerian project than for an equivalent German project (using a US $ risk free rate of 1% and a beta of 1.1 Cost of equity in US $ for German project = 1% + 1.1

Risk-free Rate 52

Risk-free Rate Risk Premium Start-ups Equity 52

Musings on Markets

OCTOBER 4, 2023

Thus, the equity risk premium of 4.84% on October 1, 2023, when added to the ten-year T.Bond rate of 4.58% on that day yields an expected return on equity of 9.42%, up from 8.81% on July 1, 2023. below the index value of 4288, confirming my base case conclusion.

Marketability 123

Marketability Start-ups Risk Premium Treasury 123

Andrew Stolz

MARCH 20, 2020

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. Suitability and limitation.

Beta 52

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

Musings on Markets

JANUARY 30, 2023

Returns in 2022 In my first classes in finance, as a student, I was taught that the US treasury rate was a risk free rate, with the logic being that since the US treasury could always print money, it would not default.

Treasury 97

Treasury Start-ups Risk Premium Equity 97

Musings on Markets

JANUARY 21, 2023

That said, when investors buy equities, it would be both irrational and illogical to settle for expected returns that are less than what you can earn on risk free or guaranteed investments, though behavioral finance suggests that both irrationality and illogic are persistent human traits. Stocks: The What Next?

Equity 95

Equity Risk Premium Start-ups Dividends 95

Equilest

JANUARY 3, 2023

Next, we need to estimate the risk-free rate and the risk premium for each risk factor. Let's say the risk-free rate is 3%, the risk premium for market risk is 5%, the risk premium for industry risk is 4%, and the risk premium for country risk is 2%.

Risk Premium 40

Risk Premium Risk-free Rate Market Risk Finance 40

Valutico

DECEMBER 12, 2023

We’ve added a ‘date picker’ across key resources sections, allowing you to examine risk-free rates, corporate tax rates, market risk premium, and country ratings across any historic date you select. Resources Section Date Improvement: What? Explore this feature in the Resources section.

Risk-free Rate 52

Risk-free Rate Risk Premium Market Risk Marketability 52

Musings on Markets

FEBRUARY 8, 2022

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

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

Valutico

FEBRUARY 13, 2025

Market Risk-Free Rate: Beta calculations often involve comparing the asset’s returns to a risk-free rate, such as the yield on a government bond with a similar maturity. Ensure that you have access to accurate and up-to-date data for the chosen benchmark index.

Beta 52

Beta Covariance Risk-free Rate Specific Risk 52

Valutico

APRIL 17, 2023

The WACC formula derives the current cost of each form of finance, starting with the risk-free rate, the expected return on equity, and the costs associated with debt financing. The required rate of return for equity (Re) is generally calculated using the Capital Asset Pricing Model (CAPM).

Weighted Average Cost of Capital 52

Weighted Average Cost of Capital Discounted Cash Flow Beta Risk-free Rate 52

Valutico

APRIL 17, 2023

The WACC formula derives the current cost of each form of finance, starting with the risk-free rate, the expected return on equity, and the costs associated with debt financing. The required rate of return for equity (Re) is generally calculated using the Capital Asset Pricing Model (CAPM).

Weighted Average Cost of Capital 52

Weighted Average Cost of Capital Discounted Cash Flow Beta Risk-free Rate 52

Valutico

APRIL 12, 2023

The WACC formula derives the current cost of each form of finance, starting with the risk-free rate, the expected return on equity, and the costs associated with debt financing. The required rate of return for equity (Re) is generally calculated using the Capital Asset Pricing Model (CAPM).

Weighted Average Cost of Capital 52

Weighted Average Cost of Capital Discounted Cash Flow Beta Risk-free Rate 52

Appraisal Rights

AUGUST 8, 2017

The Court concluded its opinion by walking through its several reasons for finding that the trial record in this case did not support the 29% increase in the perpetuity growth rate that the chancery court had made upon reargument. The Supreme Court Rejected the Cross-Appeal and Refused to Disregard the Comparable Companies Analysis.

Discounted Cash Flow 40

Discounted Cash Flow Comparable Company Analysis Risk-free Rate Going Concern Value 40

Andrew Stolz

JANUARY 28, 2022

Historically, Japan has a very low risk-free rate. However, my long-term outlook is a bit more optimistic. Idemitsu should be able to focus on its other segments to diversify away from oil. World Class Benchmarking Scorecard – Idemitsu Kosan. Identifies a company’s competitive position relative to global peers.

Dividends 52

Dividends Risk-free Rate Net Debt Equity 52

Equilest

JULY 31, 2022

According to the CAPM model - the return required by the shareholders can be described using the following equation: Cost of Equity = Risk-Free Rate + Beta x Risk Premium. It is customary to calculate the weighted average capital price using a financial model formula known as the CAPM (Capital Asset Pricing Model). .

Beta 40

Beta Business Valuation Finance Discounted Cash Flow 40

Andrew Stolz

JANUARY 28, 2022

Russia has a massively high risk-free rate of 10%. FCFF likely to remain volatile given abrupt changes in working capital. Value estimate – Gazprom. My revenue and margin forecast is roughly in line with analyst’s consensus. World Class Benchmarking Scorecard – Gazprom.

Risk-free Rate 52

Risk-free Rate Net Debt Start-ups Marketability 52

Musings on Markets

SEPTEMBER 20, 2024

The answer is recognizing that market-set rates ultimately are composed of two elements: an expected inflation rate and an expected real interest rate , reflecting real economic growth.

Banking 126

Banking Treasury Start-ups Marketability 126

Equidam

APRIL 26, 2025

Discount Rate (Cost of Equity): The rate used to discount future cash flows reflects the riskiness of the investment. This incorporates the risk-free rate, a market risk premium specific to the company’s country, and Beta ($beta$). Beta measures the volatility of the company relative to the market.

Discounted Cash Flow 59

Discounted Cash Flow Terminal Value Book Value Beta 59

ThomsonReuters

JUNE 15, 2021

Additionally, private companies have options in a few areas—most notably use of IBR or risk-free rate–that public companies do not,” she said.

Risk-free Rate 64

Risk-free Rate Equity Start-ups Book Value 64

Musings on Markets

JANUARY 24, 2024

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.

Treasury 52

Treasury Risk Premium Start-ups Risk-free Rate 52

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

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.

Dividends 106

Dividends Risk Premium Equity Book Value 106

Musings on Markets

MAY 6, 2022

In the equity market, I capture the price of risk with a forward-looking estimate of expected returns on stocks, computed from the level of stock prices and expected future cash flows, and I graph both the expected return and the implied equity risk premium (from netting out the risk free rate) in the graph below: Implied ERP spreadsheet In equity (..)

Risk Premium 103

Risk Premium Treasury Start-ups Equity 103

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 82

Equity Book Value Start-ups Corporate Finance 82