For the cost of equity (stock) is it better to use the current US Treasury bill rate or a longer-term government bond rate as the risk-free rate of return? Does the rate you use as the risk-free rate have an impact on what market premium might be appropriate? Historically, large-company stocks have earned an average return of 12.1% per annum, while US Treasury bills and long-term government bonds have earned average returns of 3.5% and 5.9% respectively.
For the cost of equity (stock) is it better to use the current US Treasury bill rate or a longer-term government bond rate as the risk-free rate of return? Does the rate you use as the risk-free rate have an impact on what market premium might be appropriate? Historically, large-company stocks have earned an average return of 12.1% per annum, while US Treasury bills and long-term government bonds have earned average returns of 3.5% and 5.9% respectively.
Chapter12: The Cost Of Capital
Section: Chapter Questions
Problem 10QTD
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For the
government bond rate as the risk-free
Does the rate you use as the risk-free rate have an impact on what market premium might be
appropriate? Historically, large-company stocks have earned an average return of 12.1% per annum, while US Treasury bills and long-term government bonds have earned average returns of 3.5% and
5.9% respectively.
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