Exhibit 9-2 Schematic Diagram and Example of Elements of a Discount Rate
Risk-free rate
In the United States, usually 20-year, 5-year,
or
30-day
US.
Treasury
obligation
yield
available as of the valuation date. (Empirical
equity
risk
premium
data
are
available
to
match each of these three Treasury instrument
maturities.)
4.81
20-year
US.
Treasury
bond
yield
as
of
December 30, 2005.
Source: Federal Reserve
Statistical Release.
Equity
risk
premium
(reflecting
systematic
risk)
Historical
data
available
from
Ibbotson
Associates based on S&P 500 stock returns
over
income
yields
of
20-year,
5-year,
or
30-day US. Treasury instrument rates.
May
be modified by one or more coefficients, such
as beta,
based on the capital asset pricing
model, and/or by other coefficients based on
the arbitrage pricing theory model.
7
.
17
X
1
.
5 = 10
.
76
Long horizon expected equity risk premium
times beta. Source for long horizon historical
equity risk premium: SBBI Valuation Edition
2005
Yearbook,
p.
71.
Source
for
beta:
median
of
beta
from
Standard
&
Poors
Compustat
You've reached the end of your free preview.
Want to read the whole page?
- Winter '16
- Capital Asset Pricing Model, SBBI Valuation Edition
