Cost of capital

Analysis of the ever-changing price of money

Stock prices rose last fortnight. The S&P 500 index of big American companies climbed 1.9% to 5,248, and earnings per share rose by 50c. At the current price, the S&P 500 offers an 8.8% annual expected return, which is some of the highest returns on offer in over a decade.

𝑉𝑎𝑙𝑢𝑎𝑏𝑙's discounted cash flow model suggests the S&P 500 is worth $4,818 per share. This model forecasts future earnings per share using analysts' consensus estimates for each company in the index. It also uses a stable payout ratio based on the index's average return on equity. According to this model, the market is 9.1% overvalued.