Terminal Value for REIT DCF model: Schweser S13, pg 65

L

lockheed10023

New member
Joined
Jun 18, 2026
Messages
0
Reaction score
0
Schweser Session 13, page 65 question 12.
For the terminal value in year 2017, why is it that they discount the cash flow by ‘k - ‘risk free rate’, instead of ‘k-g’? the ‘g’ being the 2017 growth rate thereafter? Are they just being dicks?
Why the fck are they using the risk free rate? is that a publishing error? They also do it on pg 58 blue box question. Please tell me they are just being c-cksuckers…
 
Not sure about the contents of Schweser material since I I use the CFAI texts. The CFAI text uses the two-stage DDM, with (r - g) in the denominator for the TV. Maybe someone was having some fun during publishing at Schweser? Maybe they decided to use ‘k’ to represent ‘r’ and ‘r’ to represent ‘g?’ Hah.
 
Can anyone shed any light on this one? I think it must just be a Schweser screw up.
The CFAI text uses the familiar DDM terminal value formula (ie Div x 1+g / r-g) in the EOC item sets and when they explain the valuation process in section 8.3 on page 119.
Schweser rather unhelpfully just launches into a blue box using Div x 1+g / r - rfr without explaining why they’re doing it and they then repear it in the concept checkers.
So frustrating…
 
should be the growth rate and not the risk free
 
V16= D17/ k-g . It is a GGM method used to derive treminal value for year 16 by using Dividend for year 17. Later it is discounted back 3 years just like any other cash flows to find present value using DDM. Error is that they have used risk free rate instead of growth.
 
You must log in or register to reply here.
Back
Top