Table 29 Capitalization Rate ‐ Build‐Up Method Notes Note 1 ‐ As the name implies, the risk‐free interest rate represents the return that a prudent investor would expect to realize from an investment in a risk‐free instrument (i.e., where the safety of capital is assured. The long‐term return on US. Treasury securities is normally considered the risk‐free rate. In this valuation analysis, a risk‐free rate of 4.60% was selected, corresponding to the year US. Treasury bond yield indicated at June 30, 2006 18 (from US. Financial Data published by the Federal Reserve Bank. Note 2 ‐ The Equity Risk Premium (“ERP”) represents the risk premium or incremental return over the risk‐free rate that is required by an investor to compensate for the added risk of an equity investment. Based upon the difference between the long‐term returns achieved on large company common stock returns less the long‐term government bond income returns from 1926‐ 18 Stocks, bonds, bills, and inflation 2006 valuation edition. 2005. Chicago Ibbotson Associates. Appendix C, Table C year US. Treasury bond yield indicated at June 30, 2006.
