In using the two-step ddm to value the REITs, question 4 uses risk-free rate in the denominator in step 2 but question 12 uses the market risk premium in the denominator in step 2. Why is that so? TIA!
Question 4 uses 8% as a discount rate which is the cost of equity not the risk free rate - see the note underneath exhibit 2: “Note: Nowak estimates an 8% cost of equity capital for all REITs”.
Question 12 uses “Appropriate discount rate (CAPM) 8.5%” rather than the market risk premium.
Yes but I’m referring to the second variable in the denominator, which as mentioned above, is the risk-free rate in 4 and the market risk premium in 12.
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