Friday, September 14, 2007

Kenyan Treasury Bill Yields


I am trying to determine the cost of equity on the Nairobi stock market using the capital asset pricing model (CAPM).

CAPM states that investors expect (demand?) to receive a return equal to:
Risk Free Rate + Beta(Market Return - Risk Free Rate)

Clearly one of the first things that I need to determine is Kenya's risk free rate. Alas the Central Bank's website provides the information that I need. This chart shows the monthly average and 12-month moving average of 91-day T-bill yields.

There are interesting observations from this information. The current economic boom is arising because the government is not providing banks and other institutions with an attractive place to park their assets. If one is able to get 25% risk-free what would they have to demand to assume the extra risk inherent in consumer and business lending?

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