On the schweser Qbank, one of the questions gives you the following info company’s 3 year bond yield and 20 year bond yield the risk premium info to calc the CAPM and asks you to caculate the bond yield + risk premium. Which yield do you use for the bond yield? The company’s 3 year or 20 year?
risk premium is always LT debt i believe
you mean the longer term debt cuz as 3 year is considered “LT” as well?
I would use the 20 year yield.
the Schweser Qbank used the 3 year… I dont remember the full question but it was just a list on yields and figures for CAPM calc… ugh… I’d use the 20 year as well
I clearnly remember reading somewhere (not sure where) that CAPM is a “smaller period” horizon model. Given that - the 3 year Bond rate would make sense…
CP - And yet the argument in the text is to use the longer term for rf?