Musings on Markets

MARCH 25, 2021

The first has been the steep rise in treasury rates in the last twelve weeks, as investors reassess expected economic growth over the rest of the year and worry about inflation. The Interest Rates Story To me the biggest story of markets in 2021 has been the rise of interest rates, especially at the long end of the maturity spectrum.

Equity 52

Equity Risk-free Rate Treasury Start-ups 52

Musings on Markets

MAY 6, 2022

In fact, the average inflation rate in the 2011-20 decade was the lowest of the seven decades that I cover in this chart. While the market-implied expected inflation rate has also climbed to a ten-year high of 2.85%, it is clearly lower than the consumer survey expectation.

Risk Premium 92

Risk Premium Treasury Start-ups Equity 92

Andrew Stolz

AUGUST 4, 2020

Risk-free rate: The risk-free rate is the government bonds yield; therefore, it is strongly influenced by the inflation rate. Additional factors that influence the risk-free rate are macroeconomic factors, monetary policies, external and structural factors. Dividends .

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Risk Premium Equity Risk-free Rate Dividends 52

Musings on Markets

JANUARY 27, 2022

That said, the three primary inflation indices in the US, the CPI, the PPI and the GDP deflator all told the same story in 2021: Download historical inflation numbers The inflation rate during the course of the year reached levels not seen in close to 40 years, with every price index registering a surge.

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Risk-free Rate Treasury Price to Book Start-ups 84

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

Musings on Markets

JULY 13, 2022

Country Risk: Default Risk and Ratings For investors, the most direct measures of country risk come from measures of their capacity to default on their borrowings.

Risk Premium 81

Risk Premium Risk-free Rate Start-ups Equity 81

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 80

Risk Premium Risk-free Rate Start-ups Equity 80

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

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

Andrew Stolz

AUGUST 6, 2020

It is a model based on the linear relationship between an asset’s expected risk and return. These variables include inflation , changes in interest rates, exchange rates, etc. Both the theories explain the relationship between expected return and risk; although, the arbitrage pricing theory is harder to implement.

Risk-free Rate 52

Risk-free Rate Risk Premium Beta Marketability 52

Musings on Markets

AUGUST 15, 2023

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?

Risk-free Rate 80

Risk-free Rate Treasury Risk Premium Start-ups 80

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

Musings on Markets

OCTOBER 4, 2023

The Markets in the Third Quarter Coming off a year of rising rates in 2022, interest rates have continued to command center stage in 2023. At the start of October, the ten-year and thirty-year rates were both approaching 15-year highs, with the 10-year treasury at 4.59% and the 30-year treasury rate at 4.73%.

Marketability 104

Marketability Start-ups Risk Premium Treasury 104

Brian DeChesare

AUGUST 31, 2022

Convertible Arbitrage Definition: Convertible arbitrage is a relative value strategy in which a hedge fund profits based on the pricing discrepancy between a company’s convertible bonds and its underlying stock; the fund exploits changes in volatility, credit quality, and interest rates to make money while minimizing overall market risk.

Banking 73

Banking Risk-free Rate Equity Start-ups 73

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.

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Risk-free Rate Risk Premium Market Risk Marketability 52

Valutico

APRIL 17, 2023

The WACC is used as the discount rate in a DCF analysis. The higher the WACC, the higher the discount rate, and so the lower the value of the business. WACCs in certain industries may be higher or lower in general, depending on the risk associated with that industry.

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 is used as the discount rate in a DCF analysis. The higher the WACC, the higher the discount rate, and so the lower the value of the business. WACCs in certain industries may be higher or lower in general, depending on the risk associated with that industry.

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 is used as the discount rate in a DCF analysis. The higher the WACC, the higher the discount rate, and so the lower the value of the business. WACCs in certain industries may be higher or lower in general, depending on the risk associated with that industry.

Weighted Average Cost of Capital 52

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

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

Andrew Stolz

MARCH 20, 2020

The cost of capital also reflects the riskiness of a firm which reflects the required rate of return. The cost of equity (Ke) is an expected return that a firm pays to an equity investor to compensate for the risk of investing capital. It can also imply a minimum required rate of return that an investor is willing to hold stock.

Beta 52

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

Musings on Markets

JANUARY 28, 2024

In my last data updates for this year, I looked first at how equity markets rebounded in 2023 , driven by a stronger-than-expected economy and inflation coming down, and then at how interest rates mirrored this rebound. Analysts often try to bring company-specific components, i.e, Analysts often try to bring company-specific components, i.e,

Risk Premium 93

Risk Premium Beta Start-ups Equity 93

Musings on Markets

FEBRUARY 11, 2023

In the month since, I have added two more data updates, one on US equities and one on interest rates , but my attention was drawn away by other interesting stories. Valuing a company in Turkish Lira should give you the same value as valuing the same company in Euros, differences in riskfree rates notwithstanding.)

Risk Premium 76

Risk Premium Start-ups Equity Marketability 76

Equilest

JULY 31, 2022

To evaluate a company's value, using the cash flow discounting method, the future cash flows that the firm will generate must be estimated and capitalized at a discount rate appropriate to the firm's risk. One of the common models for valuing companies is the discounted cash flow model - DCF.

Beta 40

Beta Business Valuation Finance Discounted Cash Flow 40

Brian DeChesare

MAY 3, 2023

Interest Income and Interest Expense are based on the changing interest rates times these balances. Also, the Terminal Value is normally based on a P / E multiple or a Net Income Growth Rate. The normal WACC formula does not apply since WACC is linked to all investors in the company (Enterprise Value).

Dividends 64

Dividends Terminal Value Enterprise Value Equity 64

Musings on Markets

JANUARY 8, 2022

The consensus can be wrong : A few months ago, I made the mistake of watching Moneyheist, a show on Netflix, based upon its high audience ratings on Rotten Tomatoes , and as I wasted hours on this abysmal show, I got a reminder that crowds can be wrong, and sometimes woefully so.

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Risk Premium Start-ups Market Capitalization Corporate Finance 91

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

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

Harvard Corporate Governance

JANUARY 24, 2023

2022 brought a halt to a nearly unabated 12-year run of booming credit markets and “lower for longer” interest rates. Simwinga, Joshua Feltman , Michael Benn , and Emily Johnson. Average yields for single-B bonds rose from under 4.7% on the first trading day of the year to over 9.2% over the same period.

Finance 224

Finance Risk-free Rate Marketability Banking 224

Musings on Markets

JANUARY 20, 2021

The failures of the signal have been variously attributed to low interest rates, accounting mis-measurement of earnings (especially at tech companies), and by some, to animal spirits. Note that nothing that I have said so far is premised on modern portfolio theory, or any academic view of risk premiums.

Risk Premium 52

Risk Premium Risk-free Rate Equity Dividends 52

Musings on Markets

JULY 27, 2022

On the bad news front , the take rate, i.e., the slice of gross order value (GOV) that Zomato keeps has dropped substantially over the last year , reflecting increased competition in the market, higher delivery costs and Zomato's entry into newer markets (like grocery delivery) with lower revenue sharing. 2% from my IPO valuation.

Risk Premium 81

Risk Premium Start-ups Equity Marketability 81

Musings on Markets

FEBRUARY 15, 2023

As I have argued in all four of my posts, so far, about 2022, it was year when we saw a return to normalcy on many fronts, as treasury rates reverted back to pre-2008 levels, and risk capital discovered that risk has a downside.

Start-ups 52

Start-ups Equity Risk Premium Risk-free Rate 52

ThomsonReuters

MAY 6, 2021

A discounted cash flow approach involves projecting a stream of cash flows for an item and then applying a discount rate to those cash flows to calculate a single value or a range of values for that item. Developing Assumptions for Expected Cash Flows and the Discount Rate. The discount rate. Discount Rate.

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

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

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 78

Risk Premium Equity Start-ups Treasury 78

Brian DeChesare

FEBRUARY 28, 2024

For the right person, though, fixed income research can be even better than equity research, whether you’re at a bank, an asset management firm, a hedge fund, or a credit rating agency: Table of Contents: What is Fixed Income Research? a credit rating vs. an investment recommendation). Due to the age and the fact that J.C.

Equity 59

Equity Banking Start-ups Finance 59

Musings on Markets

JANUARY 12, 2021

Discount rates in intrinsic valaution have to change to reflect current market conditions, and can be expected to change over time. 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

NOVEMBER 9, 2021

The first is that the company stumbled briefly on revenues in the second quarter of 2020, as COVID restrictions kicked in, but saw a surge in growth in the quarters since, with growth rates significantly higher than in the pre-COVID years. for mature markets.

Start-ups 99

Start-ups Dividends Marketability Market Capitalization 99