Therefore the risk free rate is most likely slightly higher than would be if a ten-year treasury bond was used to determine the risk free rate.

Part 4:

You are having second thoughts about your choice of a proxy company and are concerned that a wrong choice may impact on the investment decision. To alleviate your fears (and those of the board) you run a sensitivity analysis to see how changes in the beta estimate affect your investment choice. You include this analysis in your report to the board and discuss the implications of you analysis.

Since the calculations used in the previous section were based off of a historical figure of beta that represents more of a conglomeration than just a grocer it is necessary to consider what would happen if the beta was incorrect. Since both organizations are at least remotely similar in their scope of operations a...
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