Purpose Worth analysis estimates a holding-period return by combining an entry price, forecast cash flows and an exit price derived from an assumed exit yield. The paper sets out a structured method for adjusting exit yield assumptions so that entry and exit pricing are treated consistently, ensuring that the resulting return is not distorted by mismatched assumptions. Design/methodology/approach A yield curve was created using simulations of stylised pseudo-assets across a range of Unexpired Lease Terms (ULTs). For each pseudo-asset, simulated cash flows were discounted at a target return adjusted for the corresponding volatility of returns, which varies by ULT, to derive equivalent yields and form a yield curve by ULT. Findings The yield curve reproduces the expected relationship between ULT, volatility and target return in the simulation. Research limitations/implications The framework does not incorporate potential changes in investor risk preferences through the cycle. The volatility estimates used in the yield curve, therefore capture only the distribution of cash flow outcomes, not the additional variability that would arise if shifting risk preferences were to alter the shape of the yield curve. This means that the results should be interpreted as a central-case calibration under stable pricing behaviour rather than a full representation of market-driven return variability. Practical implications The yield curve can be implemented within standard financial modelling environments used for investment worth appraisal by applying exit yields from the yield curve, according to the ULT and any assumed movement in market pricing. This improves transparency, auditability and comparability across assets. Originality/value The paper embeds finance-theory consistency within industry-standard Worth analysis by reformulating equivalent yield as a risk-aware curve tied to income security. It enables users to interpret market pricing through a structured yield curve, allowing exit yields to vary systematically with differences in income security.
Malcolm Frodsham (Thu,) studied this question.