Remove Bond Remove CAPM Remove Management Remove Marketing

Why Sit on All that Cash? Firms Uncertain on Cost of Capital

Harvard Business Review

In estimating the cost of equity, nearly nine out of ten organizations use the capital asset pricing model (CAPM), which calculates the cost of equity using a risk-free rate, beta factor, and a market risk premium, each of which introduces significant variability. Given that the historical spread between 90-day Treasury bills and 30-year Treasury bonds is approximately 3 percent, this wide variation in choices for the risk-free rate will have dramatic effects on project valuation.

Why Those Guys Won the Economics Nobels

Harvard Business Review

The Swedes had given the award to one guy, Eugene Fama , who is best known for originating something called the efficient market hypothesis, another guy, Robert Shiller , who once called the efficient market hypothesis “one of the most remarkable errors in the history of economic thought,” and a third guy, Lars Peter Hansen , whose work is so dense that even academic economists couldn’t satisfactorily explain it or its connection to Fama and Shiller.

CAPM 12