PPT-ESTIMATING HURDLE RATES II: RISK FREE RATE

Nothing in life is guaranteed right Aswath Damodaran Aswath Damodaran Inputs required to use the CAPM The capital asset pricing model yields the following expected return Expected Return . The Effective Annual . Rate (EAR). Indicates the total amount of interest that will be earned at the end of one year. The EAR considers . the effect of compounding. Also referred to as the effective annual yield (EAY) or annual percentage yield (APY). . Center of European Policy Studies. – Brussels, . October 20 2010. Hans-Joachim . Dübel. Finpolconsult. .de. , Berlin. Market risk: central mortgage product design, pricing and credit issue. Interest rate mechanics of . Guy Hargreaves. ACE-102. Recap of yesterday. The concepts of market liquidity and product fungibility . The major instruments traded in global financial markets. Broad trends that have led to today’s financial instruments . rates . VIII: . Bottom up betas II. The law of large numbers is your best friend.. Estimating . Bottom Up Betas & Costs of Equity: Vale. Vale: Cost of Equity Calculation – in nominal $R. To convert a discount rate in one currency to another, all you need are expected inflation rates in the two currencies.. Brian Kipps. Swaps vs. Bonds: Theoretical considerations. In evaluating an ideal “risk free” yield curve one should consider the . characteristics required . from such a curve:. Observable. . Transparent, quoted in the open market, easily validated. Interest Rate Hedges. 1 June, depositing in 5 months. So buy December. . = 19. On 1 June we buy 19 December contracts. On 1 November we will sell. Price 96.60. Basis risk 60 ticks. By 1 November basis risk will fall by 5/7, leaving 17. 1. Managing Interest Rate Risk. Interest Rate Risk. The potential loss from unexpected changes in interest rates which can significantly alter a bank’s profitability and market value of equity. 2. Managing Interest Rate Risk. Jennie Morse. BA 543. Evening Section. Agenda. Intro. Exchange Rates. Forex. Market. Hedging vs. Arbitrage. Currency Derivatives. Forward Contracts. Futures Contracts. Options. Swaps. Conclusion and Questions. Interest Rate. principle. interest payment. interest rate = payment/principle. (these days often daily, but expressed as a yearly equivalent). Future Value: The future value of 100 at r% for t years is the amnt of money you will have in t years if invested at r%: principle*(1 r)^t. A regression beta is just a statistical number. Estimating Beta. The standard procedure for estimating betas is to regress stock returns (. Rj. ) against market returns (. Rm. ) -. R. j. = a b . R. Hurdle rates III: Estimating Equity risk premiums Part I Stocks are risky! Really! The Equity Risk Premium The risk premium is the premium that investors demand for investing in an average risk investment, relative to the riskfree rate. Hurdle rates III: Estimating Equity risk premiums Part I Stocks are risky! Really! The Equity Risk Premium The risk premium is the premium that investors demand for investing in an average risk investment, relative to the riskfree rate. risk premiums Part I. Stocks are risky! Really!. The Equity Risk Premium. The risk premium is the premium that investors demand for investing in an average risk investment, relative to the riskfree rate.. iContentPageExecutive SummaryIIIntroductionIIIThe Role of Reference Interest RatesDifferent uses of reference interest ratesCredit productsDerivativesThe use of reference interest rates in other produ