Equity Instruments: Newsletter – September 20,
2014
Where we
are in classÉ
Where you
should be in the projectÉ
Data NotesÉ
You can get a riskfree rate for the US by going to:
You can also get bond rates from other countries by going to:
http://www.tradingeconomics.com/bonds-list-by-country
You will still need default spreads to clean up these rates and make them risk free.
Next week, we will start on estimating betas. You can get a beta for comparable firms and a debt to equity ratio, on average, for these firms, by going to:
http://www.reuters.com/finance/stocks
Type in the symbol for your stock. You will get an average beta for the sector and average book value debt to equity ratio. You have to estimate the market value debt to equity ratio by doing the following:
Market D/E Ratio = Book D/E ratio/Price to book ratio
Use the average beta and the average market debt to equity ratio to estimate the unlevered beta (You can use a 35% tax rate).
If you want to find out how Barra adjusts its betas, you can try their site:
Miscellaneous
FAQs
I
am analyzing a foreign company. Which riskfree rate
should I get?
Your choice of riskfree rate will be determined by which currency you do your valuation in, and whether you use real or nominal cash flows.
What
risk premium should I be using my valuations?
You know my views. I think you should use an implied equity risk premium in mature markets, where you can get the information to estimate it. If you cannot, you should add a country risk premium to the US implied equity risk premium.
My
stock has not been listed long. Can I get a beta calculation off Bloomberg?
You can get the beta calculation, by using daily returns. The beta will probably not mean much, though.