Homepage
PR Newswire
Hi!
Some questions about DCF valuation:
To calculate WACC, we need to get the Cost of Equity, with formula:
(Re) = Rf + Beta (Rm-Rf).
- Rf is the risk-free rate
- Rm-Rf is the Equity Market Risk Premium
- For risk-free rate, I intend to use the 10-year government bond yield.
- For Equity Market Risk Premium, I intend to calculate the average difference between the earnings yield (E/P) and the 10-year government bond yield
- For beta, I intend to leave it as 1. Reason is because I think volatility is not equal to risk. Beta is a measure of volatility, and if you are investing for the long term, beta shouldn't be important.
Do you think these are OK approximations for Rf, Rm-Rf, and beta? Thanks!
Some questions about DCF valuation:
To calculate WACC, we need to get the Cost of Equity, with formula:
(Re) = Rf + Beta (Rm-Rf).
- Rf is the risk-free rate
- Rm-Rf is the Equity Market Risk Premium
- For risk-free rate, I intend to use the 10-year government bond yield.
- For Equity Market Risk Premium, I intend to calculate the average difference between the earnings yield (E/P) and the 10-year government bond yield
- For beta, I intend to leave it as 1. Reason is because I think volatility is not equal to risk. Beta is a measure of volatility, and if you are investing for the long term, beta shouldn't be important.
Do you think these are OK approximations for Rf, Rm-Rf, and beta? Thanks!