Hi, for the risk-free rate in the CAPM formula. Should i use the market yield or the coupon rate of the 10 -year bond as the risk free rate ? - Seedly
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Timothy Lee Yong Kang

Asked on 26 Dec 2019

Hi, for the risk-free rate in the CAPM formula. Should i use the market yield or the coupon rate of the 10 -year bond as the risk free rate ?

Anyone with experience using this CAPM Formula willing to share their experience and help?

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pat
pat
Level 7. Grand Master
Answered on 19 Jan 2020

Textbook answer would be 10 years bond coupon rates.

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Choon Yuan Chan
Choon Yuan Chan
Level 9. God of Wisdom
Answered on 18 Jan 2020

From our finance classes, the answer is to take the coupon rate of the 10 year bond. This is because of the idea we should be adopting something that is close to risk free. The market yield is not a good "close to risk free" instrument

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Billy Ko
Billy Ko
Level 7. Grand Master
Answered on 13 Jan 2020

For valuation taught in school, it would usually be the 10-year bond as the risk free rate. That's how typical investors would value share prices.

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Wilson Nid A Break
Wilson Nid A Break
Level 9. God of Wisdom
Answered on 26 Dec 2019

Personally, i feel there's no hard and fast rule, I would used CPF OA 2.5% myself. Some also used the historical inflation rate...

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