Asset Values (Prices)

Asset values are computed using the discounted cash flow approach and the following inputs: 

• A forecast of the future payouts to the owners of the asset (dividends and shareholder loan repayments and interest, or senior debt service)
• A term structure of risk-free rates in the relevant market on the valuation date (quarter- or month-end) and at the relevant horizon (duration)
• An equity risk premia or debt credit spread 

Thus, we have

$$//<![CDATA[ \begin{array}{l}\displaystyle P_{i,t}=\sum_{t=1}^T \frac{CF_t}{(1+r_{i,t})^t}\end{array} //]]>$$

with   $//<![CDATA[ \begin{array}{l}P_t\end{array} //]]>$ the price of asset  $//<![CDATA[ \begin{array}{l}i\end{array} //]]>$ at time   $//<![CDATA[ \begin{array}{l}t\end{array} //]]>$,  $//<![CDATA[ \begin{array}{l}CF_1\dots CF_T\end{array} //]]>$ the stream of future payouts, and  $//<![CDATA[ \begin{array}{l}r_{i,t}\end{array} //]]>$ the discount rate for asset  $//<![CDATA[ \begin{array}{l}i\end{array} //]]>$ at time  $//<![CDATA[ \begin{array}{l}t\end{array} //]]>$.

Here,  $//<![CDATA[ \begin{array}{l}r_{i,t}\end{array} //]]>$ is the combination of the term structure of risk-free rates in each period   $//<![CDATA[ \begin{array}{l}t\end{array} //]]>$ until investment horizon $//<![CDATA[ \begin{array}{l}T\end{array} //]]>$ and the risk premia $//<![CDATA[ \begin{array}{l}\hat{\gamma_i}\end{array} //]]>$ estimated for asset  $//<![CDATA[ \begin{array}{l}i\end{array} //]]>$.