Abstract

http://ssrn.com/abstract=227500
 
 

References (8)



 
 

Citations (8)



 


 



Discounting Rules for Risky Assets


Stewart C. Myers


Massachusetts Institute of Technology (MIT); National Bureau of Economic Research (NBER)

Richard S. Ruback


Harvard Business School

April 1987

NBER Working Paper No. w2219

Abstract:     
This paper develops a rule for calculating a discount rate to value risky projects. The rule assumes that asset risk can be measured by a single index (e.g., beta), but makes no other assumptions about specific forms of the asset pricing model. It treats all projects as combinations of two assets: Treasury bills and the market portfolio. We know how to value each of these assets under any theory of debt and taxes and under any assumption about the slope and intercept of the market line for equity securities. Our discount rate is a weighted average of the after-tax return on riskless debt and the expected return on the portfolio, where the weight on the market portfolio is beta.

Number of Pages in PDF File: 24

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Date posted: April 27, 2000  

Suggested Citation

Myers, Stewart C. and Ruback, Richard S., Discounting Rules for Risky Assets (April 1987). NBER Working Paper No. w2219. Available at SSRN: http://ssrn.com/abstract=227500

Contact Information

Stewart C. Myers (Contact Author)
Massachusetts Institute of Technology (MIT) ( email )
Sloan School of Management
Cambridge, MA 02142
United States
617-253-6696 (Phone)
617-258-6855 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Richard S. Ruback
Harvard Business School ( email )
Boston, MA 02163
United States
617-495-6422 (Phone)
617-496-8443 (Fax)
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