It appears that CFA is not making things very clear, got 2 questions regarding equity:
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What risk free rate are we supposed to use if both long term and short term are given? In Equity TT 12 we are asked to do the fama french model, used the long term RF and answered said use short term, without explaining of course.
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in EV calculation, i know we are supposed to use MV of debt, but if only balance sheet is given, do we only count the long term debt? In one of the TT there are both long term debt and note payable, turns out in that question we are supposed to use long term debt only.
Can some one please clarify? Many thanks!
Fama-French uses the 1-month T-bill rate.
For CAPM you should use a risk-free rate of the same maturity as your expected holding period.
For EV, the curriculum says use debt. Not long-term debt. Not short-term debt. Debt.
I think that that question’s wrong.
Thank you very much magician, may i ask another question.
In CFA TT they always ask you to use SGR as the growth rate, and it usually involves finding b and roe. We know that ROE = NI/Equity, but which equity are we supposed to use lol. In one TT the answer ask you to use common equity and in the other they ask you to use total equity.
And if anybody know about the debt in EV caluclation please help.
I guess people are way too hardworking and there has got to be some need to control the pass rate right? haha gj cfai.
When I did that question with note payable, I considered n/p as minus cash equivalent and didn’t include in EV.
The only one I saw until now using total equity is to find EV by adding minority interest.
I think I saw one with common stock + RE. If its for ROE, I guess you divide NI by (common stock + RE) excluding MI.
I never worried about short term debt. Why add short term debt? Current portion of long term debt is a different story though.
Actually I don’t remember where the note payable was. I haven’t done TT Metev. It wasn’t for the EV then.