tag:blogger.com,1999:blog-8152901575140311047.post4678612196215779854..comments2024-03-28T08:16:22.230-04:00Comments on Musings on Markets: Low riskfree rates...Aswath Damodaranhttp://www.blogger.com/profile/12021594649672906878noreply@blogger.comBlogger14125tag:blogger.com,1999:blog-8152901575140311047.post-20959098777933965622013-05-26T03:28:47.080-04:002013-05-26T03:28:47.080-04:00This is one of the good articles you can find in t...This is one of the good articles you can find in the net explaining everything in detail regarding the topic. I thank you for taking your time sharing your thoughts and ideas to a lot of readers out there.VPN servicehttp://www.sunvpn.comnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-21476177716397895052013-01-11T20:20:42.291-05:002013-01-11T20:20:42.291-05:00This website has very good content. Someone I work...This website has very good content. Someone I work with visits your blog regularly and recommended it to me to read also. Thank you pertaining to giving this excellent content on your web-site<br />hermes 35cm birkinhttp://www.ibirkinbags.com/hermes-birkin/birkin-bag-35cmnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-56491040961685230162009-03-04T03:41:00.000-05:002009-03-04T03:41:00.000-05:00ABC derives 60% of its revenues from US (low growt...ABC derives 60% of its revenues from US (low growth and low inflation market) and 40% from markets like India/ China (much higher growth rates and inflation). While the forecasted cash flows are reported in USD, taking US risk free rate of 3% will not account for the higher growth and inflation emanating from my export markets (India and China). Thus there would be a potential mismatch between the real growth and inflation built into the US risk free rate the forecasted cash flows.fahbahhttps://www.blogger.com/profile/06293138892407584011noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-42531802316391959952009-02-12T07:55:00.000-05:002009-02-12T07:55:00.000-05:00Dear professor. I very appreciate your contributio...Dear professor. I very appreciate your contribution for valuation progress. Your methodology is the most frequently used in the Czech Republic that I am from. <BR/><BR/>I have one question on you regarding the risk-free rate as a component of the ERP presented on your websites. You compute T.Bond (10Y) return as its rate reduced by price change resulted from coupon rate change. <BR/><BR/>My questions are: <BR/>1.) Why do you make this adjustment? Notwithstanding if you hold the bond up to its maturity you will get the coupons regularly and the nominal value at the end.<BR/>2.) Is there any difference between your approach of T.Bond return computation and the "bond income return" mentioned e.g. by Mr. Ibbotson or Mr. Pratt?<BR/>2.) Is your approach consistent with computation of risk-free rate as the first part of the cost of equity formula: C(e) = r(f) + ERP*beta. In this case we use nominal T.Bonds rate.<BR/><BR/>Thank you very much.Kisekhttps://www.blogger.com/profile/14117681324774133089noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-80976758132628963332009-02-07T15:02:00.000-05:002009-02-07T15:02:00.000-05:00In the last comment obviously i meant using the im...In the last comment obviously i meant using the implied premium for valuations.Gaurav Mehtahttps://www.blogger.com/profile/06728937525354512495noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-17861712622469505202009-02-07T12:36:00.000-05:002009-02-07T12:36:00.000-05:00Hi sir, Given that the S&P 500 is at around 85...Hi sir, <BR/><BR/>Given that the S&P 500 is at around 850 presently the intrinsic risk premium calculates to around 6.85% assuming the dividends and buybacks this year! I just wanted to clarify if the markets were to rebound later this year or next year given the intrinsic level of the marke to be atleast 1300...the risk premium would decrease too... so doesn't this imply that the valuations we do at this point in time would be relevant for very short term ??Gaurav Mehtahttps://www.blogger.com/profile/06728937525354512495noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-38189698340675496032009-02-05T05:45:00.000-05:002009-02-05T05:45:00.000-05:00Excellent post professor. And I completely agree w...Excellent post professor. And I completely agree with your approach.Pensamientos Neoliberaleshttps://www.blogger.com/profile/10559210170462744251noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-34029308361416928742009-02-04T10:17:00.000-05:002009-02-04T10:17:00.000-05:00You can back a riskfree rate out of forward rates,...You can back a riskfree rate out of forward rates, if you can find them for a long enough time period.Aswath Damodaranhttps://www.blogger.com/profile/12021594649672906878noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-58770769942341140312009-02-04T10:06:00.000-05:002009-02-04T10:06:00.000-05:00Aswath, do you have any thoughs about risk-free ra...Aswath, do you have any thoughs about risk-free rate for emerging markets? One of the ideas I've heard was to use forward exchange rates and US dollars risk-free rate. Can you suggest any other method?Nataliyahttps://www.blogger.com/profile/17902541858136992474noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-33975878884773728212009-02-04T01:32:00.000-05:002009-02-04T01:32:00.000-05:00The risk free rate is nominal i.e. it reflects the...The risk free rate is nominal i.e. it reflects the real interest rate plus inflation expectations.<BR/><BR/>When risk free rates are compared to inflation linked bonds, one can see where the market is expecting inflation to head.<BR/><BR/>So from a consistency perspective, should the inflation applied to the cash flows be similar to the inflation reflected it the current risk free rate?<BR/><BR/>Or is there a view that says the real interest rate is at historical lows?<BR/><BR/>Any thoughts?Hamish Blairhttps://www.blogger.com/profile/06770752741609574890noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-36492869362223451992009-02-03T22:02:00.000-05:002009-02-03T22:02:00.000-05:00I don't think so... I valued about 30 companies in...I don't think so... I valued about 30 companies in the last few weeks for my second edition of the Dark Side of Valuation. While I found some companies to be under and some over valued, the average across the 30 companies, using today's riskfree rates and a 6.43% risk premium worked out to about where the market is today....Aswath Damodaranhttps://www.blogger.com/profile/12021594649672906878noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-9806526174305841932009-02-03T17:18:00.000-05:002009-02-03T17:18:00.000-05:00My belief would be that if we use the implied prem...My belief would be that if we use the implied premium of 6.43% or lower in conjunction with the super-low risk free rates, this will under-estimate the required rate of return, hence the cost of equity as well as the hurdle rate.Put it in other words, if the risk premium is around 6.43%, why are investors not snapping up stocks (which would be a bargain, right?) or Companies taking up new projects (or even replacing older projects). It is because the required return for holding the stock has gone way up (and the expected return has gone down or atleast remained the same) and so have the hurdle rate and the only way that can explain this is that the marginal investor or the company has a higher risk premium than (ever?) before. Hence it might be reasonable to assign a higher number for risk premium atleast for now. I would like Prof. Damodaran if he can shed more light on this, thanksSaurav Roychoudhuryhttps://www.blogger.com/profile/15717543692051491723noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-28679195039857624772009-02-03T11:24:00.000-05:002009-02-03T11:24:00.000-05:00Professor--9-10% as an equity premium seems too hi...Professor--9-10% as an equity premium seems too high though an implied premium of 6.43% based upon a 4% growth in earnings for the S&P over five years also doesn't seem quite right. What is your thinking on the best way to calculate this crucial input?not-so-eruditehttps://www.blogger.com/profile/18207916510386137791noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-73436810569569838672009-02-02T17:05:00.000-05:002009-02-02T17:05:00.000-05:00Thanks! Thats what I am doing in my class. I am st...Thanks! Thats what I am doing in my class. I am still using the unusually low risk free rates for both short term (for eg. 0.22% for 3 month T-bill today) and long term horizons (2.72% on a 10 year G-Bond today) but I am using a higher equity risk premium (about 9%-10%) and a higher Default spread (updated from your recent ratings calculator)when I am doing the cost of debt (I have actually increased the spread by few basis points, more for lower ratings). Still we have unusually high Liquidity premium which accounts for about 100-500bp differences in similar bonds (same maturity and ratings)Saurav Roychoudhuryhttps://www.blogger.com/profile/15717543692051491723noreply@blogger.com