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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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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Choon Yuan Chan
Choon Yuan Chan
Top Contributor

Top Contributor (Dec)

Level 9. God of Wisdom
Answered 47m ago

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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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 8. Wizard
Answered 4w ago

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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