Risk free rate

Risk free rate is an important factor in the CAPM model. In the current market environment risk free rate can raise up many issues when coming up with the proxy for risk free rate. For the purpose of valuation, long-term projections for the company are usually prepared and in line with the long-term aim of estimating the value of a business, proxy for a long-term risk free should also be used. Using a long times series of nominal yields of AAA-rated government bonds or applying expected real interest rates with expected inflation, should be the appropriate way for estimating risk free rate used in the CAPM model for the purpose of business valuation.

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Lecture on Business Valuation

Dean Mikolic gave lecture on Business Valuation at The Association of Corporate Treasurers Slovenia.

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M&A market in Ukraine

At the same time as the global M&A value reached new record level, with over EUR 4.3 trillion in 2015, driven by several mega-deals, value of Ukrainian M&As reached its new low with a mere EUR 503 million. The main reasons for very low M&A activity in Ukraine are the political instability and war in the East of the country. There is little interest from foreign investors, which gives opportunity to Ukrainian buyers who can acquire assets with significant discounts. It is expected that the significant number of distressed assets will attract foreign buyers with the purpose of acquiring undervalued assets but this has not yet become a massive trend.

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Challenges when valuing insurance companies in SEE region

Financial institutions (including insurance companies) differ from other, non-financial companies in many factors. Therefore their valuation has its own specifics compared to valuation of other companies. When valuing insurance companies from SEE region appraiser faces some additional challenges as well.

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Beta impact on valuation

Part 4 concludes the series, which was focused on beta estimation. Part 4 sums up how different decisions and market conditions impact beta estimation, which can have an importat impact on the estimated value of a company or asset.

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Illiquid markets and thin-trading effect on beta estimates

Markets of Southeast Europe are significantly more illiquid when compared to the markets of West Europe and USA. This illiquidity can have an important impact on the estimated beta. In Part 3 an impact of illiquid markets on beta is analyzed.

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Impact of estimation period and return interval on estimated beta

In Part 2 focus will be on three factors that can have a significant impact on the estimated beta coefficient. First is the length of the estimation period, second is the return interval and finally the proxy used for market portfolio.

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Understanding beta

The betas serve as a risk measure in number of risk models in finance. Beta coefficient is determined by several factors: the variability of asset returns, the variability of market returns and the correlation between the two returns. In Part 1 of four article series factors that impact beta are discussed.

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