Cost of Equity of Meridian Energy

  • Assume that the risk premium for New Zealand stock market is 5% p.a.. Go to the NZX debt market website for all traded bonds (https://www.nzx.com/markets/nzdx/bonds) to obtain New Zealand risk-free rate as of 27th Scroll down the window to find the government bond with the longest maturity (GOV410). Access the link to this bond, scroll down the window and click on the button “Load interactive chart” on the chart titled “Yield History”. Now you can slide the red line across the chart to obtain the yield on 27th April. Record this yield as the risk-free rate. Apply the capital asset pricing model to estimate the cost of equity of Meridian Energy.
Meridian Energy’s Equity Beta
NZ Market Risk  Premium
Risk free rate (government stock yield)
Estimate date 27th April 2016
Cost of equity
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