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Three
fundamental input variables: past one year EPS,
expected one year forward EPS, and 30-year bond yield.
Eleven parameters include 8 firm-specific parameters
and
3 interest rate parameters.
Firm-Specific
Variables:
- Long-run
EPS growth rate
- Duration
of Business-growth-cycle
- Volatility
of EPS growth rate
- Systematic
or beta risk of the firm
- Correlation
between the firm's EPS and the interest rate environment
- EPS
growth volatility
- Dividend
payout ratio
- Buffer
earnings
Interest
Rate Related Parameters:
- Interest
rate (30 year yield) long-run level
- Duration
of interest rate cycle
- Interest
rate volatility
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