WACC question

according to “Training the Street,” the 10 year note is used in the calculation of the RFR because the gov cancelled the issuance of the the 30 yr bond. i asked a L3 candidate and he said he doesnt know because Schweser said the 10 was for liquidity reasons and that he seen both used. insights?

the gov has since issued 30 yr bonds again.

Note that somewhere beyond 26y or so the treasury curve takes a dip (due to buying demand from insurers and other investors who want duration), so that the 30y yield is a bit of an anomaly.

just use 11%

It’s better to use the yield to maturity on the 10 year bond as opposed to the current yield which can fluctuate especially in these volatile markets. As far as I know, the long bond was dissolved, but has since been reinstated.

I remember Damodaran in his valuation book also suggests the 10 year bond. Cannot remember why it would be preferred over longer maturities though. It mostly a preference thing as far as i recall.

I think 10y has better global acceptance. It’s perhaps closer to the average maturity of a firm’s issued debt. It avoids the trouble with 30y I mentioned above. And given that after 10y IBG/YBG, it’s essentially infinite horizon anyway. :wink:

lol someone read accidental investment banker too…

Set yourself apart and seem more sophisticated. Use 11.5%