Rejoinder: Regulation and the Term of the Risk Free Rate: Implications of Corporate Debt

Accounting Research Journal, Vol. 20, No. 2, pp. 87-88, 2007

Posted: 12 Jan 2010

See all articles by Martin Lally

Martin Lally

Capital Financial Consultants Ltd

Date Written: January 11, 2010

Abstract

Hall (2007) challenges a fundamental point in the analysis of Lally (2007) and earlier papers: if the risk free rate within the allowed rate of return matches the regulatory term, then the present value of future cash flows PV0 equals equity holders initial investment C(1-L). Hall argues that this result implicitly assumes that forward rates equal expected spot rates. If this were true, it would undercut Lally’s analysis because the empirical evidence does not support the alleged assumption.

Keywords: Lally, Risk Free rate, Regulatory term, Present Value

JEL Classification: H63, G32, G38

Suggested Citation

Lally, Martin, Rejoinder: Regulation and the Term of the Risk Free Rate: Implications of Corporate Debt (January 11, 2010). Accounting Research Journal, Vol. 20, No. 2, pp. 87-88, 2007, Available at SSRN: https://ssrn.com/abstract=1535019

Martin Lally (Contact Author)

Capital Financial Consultants Ltd ( email )

Wellington 6012
New Zealand
64 4 4768645 (Phone)

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