Conversation

Notices

1. Embed this notice
   John Coates (jciv@home.social)'s status on Tuesday, 23-May-2023 23:37:55 JST John Coates

   If the US defaults, what should one use as a proxy for the risk-free rate?

   • Embed this notice
     John Coates (jciv@home.social)'s status on Tuesday, 23-May-2023 23:37:49 JST John Coates

     in reply to

     • Ann Lipton

     @annmlipton

     For those who aren't finance wonks:

     Risk-free rate is a theoretical concept that sets the lower bound on the cost of capital (e.g., cost to borrow or finance anything). As the hivemind tells us:

     "The interest rate on a three-month US Treasury bill (T-bill) is often used as the risk-free rate for US-based investors. The three-month US Treasury bill is a useful proxy because the market considers there to be virtually no chance of the US government defaulting on its obligations."

   • Embed this notice
     John Coates (jciv@home.social)'s status on Tuesday, 23-May-2023 23:37:50 JST John Coates

     in reply to

     • Ann Lipton

     @annmlipton Yield on Greek debt? 🤣

     Paul Cantrell repeated this.
   • Embed this notice
     Ann Lipton (annmlipton@esq.social)'s status on Tuesday, 23-May-2023 23:37:51 JST Ann Lipton

     in reply to

     @jciv Oh it was really more to raise the issue, not actually proposing solutions.

   • Embed this notice
     John Coates (jciv@home.social)'s status on Tuesday, 23-May-2023 23:37:52 JST John Coates

     in reply to

     • Ann Lipton

     @annmlipton What did they come up with?

   • Embed this notice
     Ann Lipton (annmlipton@esq.social)'s status on Tuesday, 23-May-2023 23:37:53 JST Ann Lipton

     in reply to

     @jciv I posed that question to my M&A students this year :-)

   • Embed this notice
     John Coates (jciv@home.social)'s status on Tuesday, 23-May-2023 23:37:54 JST John Coates

     in reply to

     Also, and not necessarily the same, what will financial analysts, companies and investors use as the risk-free rate in valuation?