Formulating the imputed cost of equity capital for priced services at Federal Reserve Banks.

Federal Reserve Bank of New York Economic Policy Review, September, 2003 by Wang, Zhenyu

* To comply with the provisions of the Monetary Control Act of 1980, the Federal Reserve devised a formula to estimate the cost of equity capital for the District Banks' priced services.

* In 2002, this formula was substantially revised to reflect changes in industry accounting practices and applied financial economics.

* The new formula, based on the findings of an earlier study by Green, Lopez, and Wang, averages the estimated costs of equity capital produced by three different models: the comparable accounting earnings method, the discounted cash flow model, and the capital asset pricing model.

* An updated analysis of this formula shows that it produces stable and reasonable estimates of the cost of equity capital over the 1981-2000...

Read the rest of this article with a Free Trial at HighBeam Research.

Premium Content Partnership | HighBeam Research provides an in-depth online archive library of reference works.