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Yes, all assets are priced relative to the risk free rate. As the assets all compete with each other and they all compete with cash rates. So that rate can be t
by HFguy 4y ago
Yes, all assets are priced relative to the risk free rate. As the assets all compete with each other and they all compete with cash rates. So that rate can be thought of as being baked into other assets already (including equities).
Having said that, if you wanted a return strictly on base-rate production, then you'd invest then in risk free assets (vs equities).
- RC_ITR 4y ago> Yes, all assets are priced relative to the risk free rate. Based on your name I bet you work in research at a hedge fund. I hate to break it to you but ask most people who are price setters what their discount is and they’ll say 10% regardless of 10Y treasury yields (since you know, TINA) As a result securities are increasingly priced on liquidity more than cash flows and that’s a function of the credit cycle way more than it’s a function of productivity. It’s a weird post modern approach to the economy, but hey that’s showbiz baby.