Question

The cost of equity can be estimated using the **Bond yield
plus risk premium approach model**. Please explain me what
data i need from the company's annual report to calculate the Bond
Yield which i will use in the computation of the cost of equity.
Kindly provide me with a real example and proper justification when
calculating the bond yield.

Answer #1

You should see which straight bonds (not callable or puttable) are outstanding from company's annual report. Once you see them, go to any website such as yahoo finance or finra or morningstar to get the details about those bonds.

You need Price, Coupon, Time left till maturity, Face Value.

Using excel or financial calculator

calculate the yield to maturity of the bond

This will be bond yield

risk premium is generally assumed to between the range of 4%-6%.

Add the two and it will be the cost of equity

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