In principle, cost of equity consists of the risk free rate of return and the premium expected for risk which investors could incur when investing in company's equity.
The data identifying risk premiums on equity and risk free rate of return on shares can be easily sourced in financial publications or calculated from share market information.
As the company operates in Lithuania, valuing its risk free rate of return meant looking at the average yield of eight year maturity Lithuanian government bonds between January 2008 and December 2008, which reached [R.
Investors require risk premium over the risk free rate of return
if they invest in stocks.
In a similar way you can analyze an investment project by substituting the expenditures required for the investment for the exercise price, the value of the assets that will be acquired in making the investment for the stock price, the length of time the investment may be deferred as the time to expiration for the option, the risk of the investment as the variance of returns on stock, and the time value of money for the risk free rate of return
The required level of return on common stock portfolios should obviously be higher than the risk free rate of return
in the economy offered by the government securities.
ft] = risk free rate of return which is the tax free of the Post Office Savings Bank (POSB).
ft] = risk free rate of return which is the tax free rate of the Post Office Savings Bank (POSB).