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Strategies & Market Trends : The Stock Market Bubble -- Ignore unavailable to you. Want to Upgrade?

To: Lucretius who wrote (2258)	11/1/1998 10:42:00 PM
From: Moominoid	Respond to of 3339

if you are going to discount earnings, you need to use a L-T rate. You should actually use some midline corp rate like B rating debt and not treasury debt. Not according to the Capital Asset Pricing Model which is what I use. There it is the 90 day T-bill rate or the like. You are comparing putting your money in stocks versus having a rolling account of T-bills. The issue is what the opportunity cost is. What the rate of return required in order to take on the higher risk of investing in stocks vs having a "risk-free" asset. So the discount rate I'm using is the treasury rate + the equity premium*beta where the premium is estimated vis a vis the treasury rate. For the market as a whole beta is one and so that drops out of the formula. Obviously this is just one theory of stock-pricing for which there is empirical evidence both for and against. David PS I just bought the put warrants I mentioned before. I didn't buy them from Banker's Trust. <g> I went with Macquarie, an Aussie Bank.