I wanted to make sure. When you are calculating cost of equity under capm, is the RFR considered a long term treasury bond, note or short term treasury bill? Anyone care to explain?
This has already been explained a few times over the last few days. Search for “CAPM” and check the most recent threads. Basiclly, the RFR should match the duration of the capital project you are evaulating. If you have a longer term (10 year focus) use the 10 year T-Bond. If short term, 3 month T-bill.
I think The rate in which there is usually one rate given (Schweser does it) but IMHO the valuation horizon can give a fair Idea of what rate to choose say if security vaulation is using MP DDM long term rate is more appropriate
"I think The rate in which there is usually one rate given (Schweser does it) " Mock exam gave a question with two rates, and asks you to use one. If you use the 3 month T-bill you get the wrong computed answer. In Book 4 of CFAI text, somewhere around pg. 40-43 it explains when and why you use the 10 year T-bond
10 yr Treasury