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Discounting Rules for Risky Assets / Stewart C. Myers, Richard S. Ruback.
- Format:
- Book
- Author/Creator:
- Myers, Stewart C.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w2219.
- NBER working paper series no. w2219
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 1987.
- Summary:
- This paper develops a rule for calculating a discount rate to value risky projects. The rule assumes that asset risk can be measured by a single index (e.g., beta), but makes no other assumptions about specific forms of the asset pricing model. It treats all projects as combinations of two assets: Treasury bills and the market portfolio. We know how to value each of these assets under any theory of debt and taxes and under any assumption about the slope and intercept of the market line for equity securities. Our discount rate is a weighted average of the after-tax return on riskless debt and the expected return on the portfolio, where the weight on the market portfolio is beta.
- Notes:
- Print version record
- April 1987.
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