The application is designed to calculate intrinsic or predicted price of the stock market (S&P 500) based on the RPF Valuation Model. The model was first published in an article by Stephen D. Hassett, published in the Journal of Applied Corporate Finance.
Tabs in the Application
The Price tab calculates predicted or intrinsic market price and equity risk premium (ERP) based on the specified inputs. The RIGR tab calculates the real implied growth rate based current price and other inputs. The resources tab contains important links to web content that provides background on the RPF Model, including the original paper published in the Journal of Applied Corporate Finance and a series of articles Hassett has written to discuss applications of the model.
Treasury Yield (Rf) = Risk Free Rate as measured using 10 or 30 Year Treasury yield.
Operating Earnings (E) = Actual Earnings (Annualized operating earnings for the prior four quarters as reported by S&P 500 is used for calculated predicted index value).
Beta = 1.0 for the overall market or company Beta.
Actual Price = Actual current price for index or company. Used for comparison to predicted value and to calculate RIGR.
Real Interest Rate = Estimated at 2% long-term. It is not recommended that you change this variable but it might be useful for sensitivity analysis.
Risk Premium Factor (RPF) = Estimated at 1.48. (See the articles in the web resources tab for more information about the RPF)
Real Growth Rate = Estimated 2.6% based on long-term GDP Growth has been used for the S&P500. This number is difficult to estimate for individual companies so the RIGR calculation for application to individual companies.
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