R
E
=
R
f
+
β
(
R
M
−
R
f
)
Where R
E
is the cost of equity (return) R
f
is the risk free rate which normally is the
government bond interest rate, β is the beta value of the stock and (R
M
- R
f
) is the market risk
premium.
By applying this model, to calculate R
E
, R
f
value needs to be determined first. To estimate R
f
,
the closest result is using resent 10 year Singapore government bond rate as the risk-free rate
of the market. It is the safest bond in Singapore with little likelihood of defaulting. In this
report, we assume the R
f
value is at 2.078% which is the value at 29
th
March 2019. (shown in
appendix D)
Appendix D: 10-year government bond
10
The second step is to find the beta value of F&N, for financial year 2018, the beta value can
be estimated by a spread sheet. A beta value of 0.361 is calculated using Beta spread. By
plotting the value difference of each day between STI index and F&N share price in the time
frame of year 2018. The slop of the best fit trend line is the beta value and it shown in
appendix E. In theory, beta is changing with time, but for the purpose of analysing, we
assume it is a constant.
Appendix E:
11
10“Singapore 10-Year-Bond Yield,” Investing.com, accessed Dec 31, 2019,
11“STI Index,” Yahoo Finance, accessed Dec 24, 2019,
%5ESTI%3FP%3D%5ESTI/history?
period1=1522512000&period2=1553961600&interval=1d&filter=history&frequency=1d
“Fraser and Neave, Limited (F99.SI),” Yahoo Finance, accessed Dec 24, 2019,
?
period1=1522512000&period2=1553961600&interval=1d&filter=history&frequency=1d