PT  - JOURNAL ARTICLE
AU  - Gary Smith
AU  - Albert Xu
TI  - Stocks Should Be Valued with a Term Structure of Required Returns
AID  - 10.3905/joi.2017.26.2.061
DP  - 2017 May 31
TA  - The Journal of Investing
PG  - 61--68
VI  - 26
IP  - 2
4099  - https://pm-research.com/content/26/2/61.short
4100  - https://pm-research.com/content/26/2/61.full
AB  - In theory, the intrinsic value of a stock is determined by discounting the projected cash flow by a term structure of time-varying required returns. In practice, investors typically use a single discount rate, often a Treasury rate plus a risk premium. A single discount rate is a noisy proxy for the full term structure and can cause large valuation errors. If a single discount rate is used, the yield to perpetuity recommended by John Burr Williams is likely to be a better approximation to a complete term structure than are short-term rates.TOPICS: Fundamental equity analysis, portfolio theory