Damodaran on Valuation_ Security Analysis for Investment and Corporate Finance ( PDFDrive )
Thecostofequityistherateofreturnthatinvestorsrequireto makeanequityinvestmentinafirm.Alloftheriskandreturn models described in t ...
expectedreturnoverafive-yearperiodandthatyouwanta risk-freerate.Asix-monthTreasurybillrate,whiledefault free,willnotberiskfree,b ...
estimated.Thisalsoimpliesthatitisnotwhereanasset or firmis domiciledthat determinesthechoice of a risk-free rate,butthecurrencyi ...
Our discussion, hitherto, has been predicated on the assumptionthatgovernmentsdonotdefault,atleastonlocal currency borrowing. Th ...
nominalBrazilianreals(BR),is 12 percentandthat the local currency rating assigned to the Brazilian government isBBB.Ifthedefault ...
(whentheeconomyisdoingwell,investorstendtobemuch more willing to take risk) and recent experiences in the market (risk premiums ...
Sincethepremium isaweighted averageof thepremiums demandedbyindividualinvestors,oneapproachtoestimating thispremiumistosurveyinv ...
returnsonstocksandaveragereturnsonrisk-freesecurities over an extended period of history. Estimation Issues Whileusersofriskandr ...
TABLE 2.1Standard Errors in Risk Premium Estimates Notethattogetreasonablestandarderrors,weneedverylong time periods ofhistorica ...
should be the premium earned by stocks over long-term bonds. 3.Arithmeticandgeometricaverages.Thefinalstickingpoint whenit comes ...
TABLE2.2HistoricalRiskPremiumsfortheUnitedStates, 1928–2004 Notethatthepremiumscanrangefrom3.47percentto8.60 percent, depending ...
Data from Dimson et al. (2002). The differences in compounded annual returns between stocksand short-term governments/long-term ...
does not make sense. If stocks always beat riskless investmentsinthelongterm,stocksshouldberisklesstoan investor with a long tim ...
risk-freerate,andgeometricaveragestoreflectourdesirefor a risk premium that we can use for longer-term expected returns.Wecanuse ...
measure of equity risk is the standard deviation in stock prices; higher standard deviations are generally associated with more ...
illiquid. This approach will understate the equity risk premiums in those markets. Default spreads plus relative standard devia ...
premium for a mature market. Thus, the total equity risk premium forBrazil using theapproachand a 4.84percent premium for the Un ...
Implied Equity Premiums Thereisanalternativetoestimatingriskpremiumsthatdoes notrequirehistoricaldataorcorrectionsforcountryrisk ...
If thecurrentrisk-freerate is 6 percent, this willyieldan equity risk premium of 3 percent. Thisapproachcanbegeneralizedtoallowf ...
aCash flow in the first year = 3.34% of 1,248.29(1.08) Ifweassumethatthesearereasonableestimatesofthecash flows and that the ind ...
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