đź‘‹ Meet Zolid AI
Here to support your company's exit journey — Zolid AI can answer questions and provide insights. Free for now, with fair usage limits.
Your conversations are not shared with others. We may review them to improve Zolid AI.
Zolid AI may provide inaccurate info, so verify responses.
No quick summary yet. Be the first to add a quick summary.
Add quick summaryNo information listed yet. Be the first to add who benefits from this content.
Suggest who benefitsSession 6 (Val Undegrads): Implied Equity Risk Premiums and First Steps on Relative Risk
No detailed summary yet. Suggest a summary to help the community.
Suggest summaryNo questions listed yet. Be the first to add a question for this topic.
Suggest question(I am sorry but I had to reload this file. The previous one had issues with the slides) In this session, we started by doing a brief test on the relationship between prices and risk premiums. We spent the rest of the class about the dynamics of implied equity risk premiums and what makes them go up, down or stay unchanged. We then moved to cross market comparisons, first by comparing the ERP to bond default spreads, then bringing in real estate risk premiums and then extending the concept to comparing ERPs across countries. Finally, I made the argument that you should not stray too far from the current implied premium, when valuing individual companies, because doing so will make your end valuation a function of what you think about the market and the company. If you have strong views on the market being over valued or under valued, it is best to separate it from your company valuation. I am attaching the excel spreadsheet that I used to compute the implied ERP at the start of February 2024. Play with it when you get a chance. Post class test and solution attached. I have also attached the weekly challenge for this week, which is built around implied equity risk premiums. If you get a chance, try it. ERP for February: Start of the class test: Slides: Post-class test: Post-class test solution:
About Aswath Damodaran
In this session, we started by looking at the challenges of valuing private-to-private transactions, where the buyer of a private business is undiversified and cares deeply about illiquidity, and how the values are depressed as a consequence. We then drew a contrast to the same company being valued by a public company, and argued that this should lead to private businesses increasingly become parts of public companies or going public themselves. In the final section of the class, we looked at valuing/pricing IPOs, and how to deal with offer proceeds from the IPO and the IPO process itself. Start of the class test: https://pages.stern.nyu.edu/~adamodar/pdfiles/eqnotes/pvtcotest.pdf Slides: https://pages.stern.nyu.edu/~adamodar/podcasts/valUGspr23/session23slides.pdf Post class test: https://pages.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session23Ftest.pdf Post class test: https://pages.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session23Fsoln.pdf