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Non-Tech : Derivatives: Darth Vader's Revenge -- Ignore unavailable to you. Want to Upgrade?

To: Freedom Fighter who wrote (888)	4/7/1999 10:19:00 AM
From: Henry Volquardsen	Read Replies (3) \| Respond to of 2794

Wayne, It wasn't science. I was just getting a feel for where we are. Understood. I was taking it in that fashion. I can understand your reluctance to use the 20% return on equity. But 4.5 to 6.5% is probably to low. Using GNP plus 1.5% for inflation would definitely skew the model towards bonds. Any stock with a long term growth expectation in the 6.5% area would be trading at much lower multiple. A middle ground is probably more in order. Perhaps making an assumption of what you think long term sustainable growth in earnings will be. Personally I would think something around 15% is doable for legitimate growth stocks. Another way to tweak the model is to come at it from the other direction. Make an assumption that the equity should crossover the bond return at some specified point. 5 to 7 years sound right to me. Then taking your reinvested bond as the given calculate what return on equity would be needed over that period. Then you can make an assessment of whether that return seems attainable. Henry