where 
the drawback of both of these models is that they do not account for valuation that is they assume the stocks prices are never correct since we can observe stock market booms and busts in the past this drawback is not insignificant finally the risk free rate of return is usually calculated using u s government bonds since they have a negligible chance of default this can mean t bills or t bonds to arrive at a real rate of return that is adjusted for inflation it is easiest to use treasury inflation protected securities tips as these already account for inflation it is also important to note that none of these equations account for tax rates which can dramatically alter returns 