Exhibit9_2_handout.pdf - Exhibit 9-2 Schematic Diagram and Example of Elements of a Discount Rate Risk-free rate Equity risk premium(reflecting

Exhibit9_2_handout.pdf - Exhibit 9-2 Schematic Diagram and...

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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
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