{"id":734,"date":"2020-06-25T15:40:55","date_gmt":"2020-06-25T15:40:55","guid":{"rendered":"http:\/\/www.southardfinancial.com\/?p=734"},"modified":"2020-06-25T15:40:56","modified_gmt":"2020-06-25T15:40:56","slug":"the-market-price-of-risk-quantifying-a-covid-19-equity-risk-premium-using-high-yield-bond-pricing","status":"publish","type":"post","link":"https:\/\/www.southardfinancial.com\/the-market-price-of-risk-quantifying-a-covid-19-equity-risk-premium-using-high-yield-bond-pricing\/","title":{"rendered":"The Market Price of Risk: Quantifying a COVID-19 Equity Risk Premium Using High-Yield Bond Pricing"},"content":{"rendered":"\n<p><em>This month&#8217;s blog post is an article that we recently published in the industry magazine, <a href=\"https:\/\/www.bvresources.com\/\" target=\"_blank\" aria-label=\"undefined (opens in a new tab)\" rel=\"noreferrer noopener\">Business Valuation Resources (BVR)<\/a>. You can read the introduction below and then download a free PDF of the entire article.<\/em><\/p>\n\n\n\n<p>Valuation professionals are faced with a complex problem of providing appraisals of private companies with valuation dates in 2020 while considering the market volatility and economic slowdown caused by the COVID-19 pandemic. As entire sections of the U.S. economy were shut down and millions of people were forced out of work, business owners in the United States have faced significant uncertainties about the future cash flows of their companies.<\/p>\n\n\n\n<p>When providing appraisals of companies in the time period where the impact of the pandemic is known and knowable, valuation professionals are tasked with: (1) deriving a discount rate that reflects the level of risk inherent in the company\u2019s future cash flows; and (2) assess- ing whether the cash flows to be discounted\/ capitalized reflect the risk and uncertainty the pandemic caused. For example, if the valuation professional is provided with projected future financial statements from company management that reflect the expected impact of the pandemic on the cash flows, then recent guidance from the AICPA and appraisal organizations is to utilize the inputs to the cost of equity capital that would otherwise normally apply (no specific adjustment). However, if management is unable to provide projected financial statements that accurately reflect the impact of the pandemic, then recent guidance from the AICPA and appraisal organizations is that the valuation professional would need to use a discount rate that reflects the risk factors of the COVID-19 pandemic. In other words, the appraiser would need to increase the discount rate by some amount.<\/p>\n\n\n\n<p>In this article, we will develop a methodology to help valuation professionals quantify the additional risk that could be used for appraisals of private companies where forecasted cash flows that reflect the impact of the COVID-19 pandemic are not available.<\/p>\n\n\n\n<div class=\"wp-block-buttons is-layout-flex wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button\"><a class=\"wp-block-button__link has-background\" href=\"http:\/\/www.southardfinancial.com\/wp-content\/uploads\/BVU0720-COVID-19-Equity-Risk-Premium-From-High-Yield-Bond-Pricing.pdf\" style=\"background-color:#83a9d3\" target=\"_blank\" rel=\"noreferrer noopener\">Download the Entire BVR Article<\/a><\/div>\n<\/div>\n\n\n\n<p><\/p>\n","protected":false},"excerpt":{"rendered":"<p>This month&#8217;s blog post is an article that we recently published in the industry magazine, Business Valuation Resources (BVR). You can read the introduction below and then download a free PDF of the entire article. Valuation professionals are faced with a complex problem of providing appraisals of private companies with valuation dates in 2020 while [&hellip;]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6],"tags":[14,28,27],"class_list":["post-734","post","type-post","status-publish","format-standard","hentry","category-blog","tag-business-valuation","tag-bvr","tag-covid-19"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v24.6 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>The Market Price of Risk: Quantifying a COVID-19 Equity Risk Premium Using High-Yield Bond Pricing - Southard Financial<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.southardfinancial.com\/the-market-price-of-risk-quantifying-a-covid-19-equity-risk-premium-using-high-yield-bond-pricing\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The Market Price of Risk: Quantifying a COVID-19 Equity Risk Premium Using High-Yield Bond Pricing - Southard Financial\" \/>\n<meta property=\"og:description\" content=\"This month&#8217;s blog post is an article that we recently published in the industry magazine, Business Valuation Resources (BVR). You can read the introduction below and then download a free PDF of the entire article. Valuation professionals are faced with a complex problem of providing appraisals of private companies with valuation dates in 2020 while [&hellip;]\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.southardfinancial.com\/the-market-price-of-risk-quantifying-a-covid-19-equity-risk-premium-using-high-yield-bond-pricing\/\" \/>\n<meta property=\"og:site_name\" content=\"Southard Financial\" \/>\n<meta property=\"article:published_time\" content=\"2020-06-25T15:40:55+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2020-06-25T15:40:56+00:00\" \/>\n<meta name=\"author\" content=\"Southard Financial\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Southard Financial\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"2 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.southardfinancial.com\/the-market-price-of-risk-quantifying-a-covid-19-equity-risk-premium-using-high-yield-bond-pricing\/\",\"url\":\"https:\/\/www.southardfinancial.com\/the-market-price-of-risk-quantifying-a-covid-19-equity-risk-premium-using-high-yield-bond-pricing\/\",\"name\":\"The Market Price of Risk: Quantifying a COVID-19 Equity Risk Premium Using High-Yield Bond Pricing - Southard Financial\",\"isPartOf\":{\"@id\":\"https:\/\/www.southardfinancial.com\/#website\"},\"datePublished\":\"2020-06-25T15:40:55+00:00\",\"dateModified\":\"2020-06-25T15:40:56+00:00\",\"author\":{\"@id\":\"https:\/\/www.southardfinancial.com\/#\/schema\/person\/260668c1dd7ed94e23b9dee47819e4c4\"},\"breadcrumb\":{\"@id\":\"https:\/\/www.southardfinancial.com\/the-market-price-of-risk-quantifying-a-covid-19-equity-risk-premium-using-high-yield-bond-pricing\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/www.southardfinancial.com\/the-market-price-of-risk-quantifying-a-covid-19-equity-risk-premium-using-high-yield-bond-pricing\/\"]}]},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\/\/www.southardfinancial.com\/the-market-price-of-risk-quantifying-a-covid-19-equity-risk-premium-using-high-yield-bond-pricing\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\/\/www.southardfinancial.com\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"The Market Price of Risk: Quantifying a COVID-19 Equity Risk Premium Using High-Yield Bond Pricing\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\/\/www.southardfinancial.com\/#website\",\"url\":\"https:\/\/www.southardfinancial.com\/\",\"name\":\"Southard Financial\",\"description\":\"Business Valuation &amp; Consulting\",\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/www.southardfinancial.com\/?s={search_term_string}\"},\"query-input\":{\"@type\":\"PropertyValueSpecification\",\"valueRequired\":true,\"valueName\":\"search_term_string\"}}],\"inLanguage\":\"en-US\"},{\"@type\":\"Person\",\"@id\":\"https:\/\/www.southardfinancial.com\/#\/schema\/person\/260668c1dd7ed94e23b9dee47819e4c4\",\"name\":\"Southard Financial\",\"image\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/www.southardfinancial.com\/#\/schema\/person\/image\/\",\"url\":\"https:\/\/secure.gravatar.com\/avatar\/507bdf4de95a3be4ba0ad98de5d93323?s=96&d=mm&r=g\",\"contentUrl\":\"https:\/\/secure.gravatar.com\/avatar\/507bdf4de95a3be4ba0ad98de5d93323?s=96&d=mm&r=g\",\"caption\":\"Southard Financial\"},\"url\":\"https:\/\/www.southardfinancial.com\/author\/southard-author\/\"}]}<\/script>\n<!-- \/ Yoast SEO plugin. -->","yoast_head_json":{"title":"The Market Price of Risk: Quantifying a COVID-19 Equity Risk Premium Using High-Yield Bond Pricing - Southard Financial","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/www.southardfinancial.com\/the-market-price-of-risk-quantifying-a-covid-19-equity-risk-premium-using-high-yield-bond-pricing\/","og_locale":"en_US","og_type":"article","og_title":"The Market Price of Risk: Quantifying a COVID-19 Equity Risk Premium Using High-Yield Bond Pricing - Southard Financial","og_description":"This month&#8217;s blog post is an article that we recently published in the industry magazine, Business Valuation Resources (BVR). 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