Equity Instruments: Newsletter – September 19,
2008
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.bloomberg.com (for the G7 countries at least)
You can get a beta for comparable firms and a debt to equity ratio, on average, for these firms, by going to:
http://www.marketguide.com (Type your symbol and click on comparison)
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:
To read about how Ibbotson estimates their historical risk premiums (their intellectual property), try:
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 can use the historical risk premium adjusted for country risk premia, or you can try to estimate an implied premium for your market.
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.