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cyber21

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tT
发表于 2011-7-11 19:54 | 只看该作者

Risk Free Rate

equity, return, provided, one
Hi

In one of the CFAI mock exam questions, they provided both the rate of return on 3-month Treasury bills (3.0%) and the rate of return on 10-year Treasury bonds (3.5%), and asked to calculate the cost of equity.

I initially used the 3.0% since I recall RFR is based on T-Bills. But the answer key shows that 3.5% for T-Bonds is used. Is there a reason for this? Thanks a lot.
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jim8z3

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发表于 2011-7-11 19:54 | 只看该作者
That's a rather odd question because the 10-year bond has term risk. I always assumed that the RFR should be stripped of all possible known risks.

- Robert

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Bluetick1010

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发表于 2011-7-11 19:54 | 只看该作者
^ yeah i thought the same way, but apparently i was wrong on my selection of RFR too.

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burnsy562000

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发表于 2011-7-11 19:54 | 只看该作者
Thought the same, but it says clearly in the CFAI text to use the 10-year as this better matches the typical holding period of equity

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ishfaque

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发表于 2011-7-11 19:54 | 只看该作者
wikipedia said RFR is t-bonds as well.

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