TY - JOUR
T1 - Stocks Should Be Valued with a Term Structure of Required Returns
JF - The Journal of Investing
SP - 61
LP - 68
DO - 10.3905/joi.2017.26.2.061
VL - 26
IS - 2
AU - Smith, Gary
AU - Xu, Albert
Y1 - 2017/05/31
UR - http://joi.pm-research.com/content/26/2/61.abstract
N2 - In theory, the intrinsic value of a stock is determined by discounting the projected cash flow by a term structure of time-varying required returns. In practice, investors typically use a single discount rate, often a Treasury rate plus a risk premium. A single discount rate is a noisy proxy for the full term structure and can cause large valuation errors. If a single discount rate is used, the yield to perpetuity recommended by John Burr Williams is likely to be a better approximation to a complete term structure than are short-term rates.TOPICS: Fundamental equity analysis, portfolio theory
ER -