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On the risk adjusted discount rate for determining life office appraisal values

Published online by Cambridge University Press:  20 April 2012

M. Sherris
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Extract

1.1 A number of papers have been written in recent years that discuss the valuation of the business of a life office, examples of these are Burrows and Whitehead (1987) and Bunch (1986). These papers recognize the need to use a risk adjusted discount rate in the calculations. Burrows and Whitehead devote a section of their paper to the determination of such a rate. In their abstract they state that “…an entire paper could be devoted to this subject”. This latter point is supported by the existence already of a number of papers in the finance literature on the very topic of determining risk adjusted discount rates e.g. Robichek and Myers (1966), Fama (1977).

1.2 This paper outlines some results of the theory of determining risk adjusted discount rates and the valuation of risky cash flows as developed in the finance literature, and discusses the application of this theory to the determination of life office appraisal values. Some comments are made on Section 3 of the Burrows and Whitehead paper.

Type
Research Article
Information
Journal of the Institute of Actuaries , Volume 114 , Issue 3 , December 1987 , pp. 581 - 589
Copyright
Copyright © Institute and Faculty of Actuaries 1987

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References

REFERENCES

Bowers, J. & Ball, R. (1987) The Cost of Equity Capital Under the New Imputation Tax System. Draft. Australian Graduate School of Management.Google Scholar
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Burrows, R. P. & Whitehead, G. H. (1987) The Determination of Life Office Appraisal Values. J.I.A., 114, 411.Google Scholar
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