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It's my understanding that, generally, we should be using long-term, 10-yr Treasury bonds in order to gauge risk-free rate. However, in this case since the investment horizon is only 3 years, shouldn't we be using the yield on the 3 year Treasury bond instead?
another related question, shouldn't the maturity of the company's estimated cost of debt matches that of the risk free rate? so if we are using 10 year risk-free rate, then we should use the yield on the company's 10-year bond where as if we are using 3 year risk free rate then we should also be using 3 year cost of debt for the company as well.
Thanks in advance.. Read More