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It depends what type of interest rate model you are using. If rates are normally distributed, the situation should be as you describe, so there should be minimal exposure to implied volatility. If rates are lognormally distributed, the higher strike option has greater time value, and has a greater volatility exposure, than the lower strike option, hence ...


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As a standard reference (in the back of my head) I use for Swedish and U.S. equities, 7% real return assuming no growth rate in FCFE. So if we assume the entity will produce $100m per year in fcfe going forward with no growth rate, then the market value of equity is 100/0.07 = 1729. The 7% comes from 2% risk free rate + 5% risk premium (adjusted for ...


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It should be related to your specific valuation model. The most common earnings related models use a risk free rate minus 3%.



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