Quote:
Originally Posted by The Cobra
The average rate of return of the stock market since its inception is about 10%.
NHL players aren’t putting their money into GIC’s.
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The OP was talking about the time value of money, and a short-term discount rate for the salary. Conversely, with the stock market, you are talking about
investing. Those are two different things. Sure, you could invest the money for the remainder of the season, and your
expected return would be 9-10%, but your
actual return could be anywhere from +50% to -50% That is why you don't use the stock market (or risky investments) when talking about discount rates. You use risk-free interest rates. (If you want to take on risk to get a return
above the discount rate, knock yourself out. But that is a separate investment decision).
Quote:
Originally Posted by JackIsBack
There are certain investments that us "regular" people can't partake in - that only the super rich get to invest in... with higher returns and with lower risk. So his 7% estimate is not far off the mark if at all.
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This simply isn't true. Risk and return are related, and if you want more return, you have to accept more risk. TO be clear, there are lots of investments that are crap (too risky for the expected return), but as far as the efficient frontier goes (i.e. properly priced investments), more return means commensurately more risk.
Quote:
Originally Posted by heep223
I also think 7% is pretty good for discounting in this context. You certainly don’t need to use risk free rates as Enoch suggested.
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The discount rate for cash is the risk-free rate. Other, higher discount rates (used to price investments, construction projects, or whatever) use higher discount rates because there is risk associated with the investment or project. You have to match the risk of the discount rate to the risk of the thing it is discounting.
So again, to the OP's comment, the interest rates I stated are the appropriate number for the point the OP was making.