You want to find the expected return for Bank of Montreal using the CAPM. First you need
Question:
You want to find the expected return for Bank of Montreal using the CAPM. First you need the market risk premium. Go to bmonesbittburns.com/economics/, and find “Daily Economic Update” under ’Publications’. Find the current interest rate for three-month Treasury bills. Use the average Canadian common stock return in Table 12.3 to calculate the market risk premium. If the beta for Bank of Montreal is 1.01, what is the expected return using CAPM?20 What assumptions have you made to arrive at this number? As you may recall from Chapter 8, stock growth is often assumed to be equal to earnings growth. Compare your answer above with an EPS growth estimate from theglobeandmail.com/globe-investor/. What does this tell you about analyst estimates?
Step by Step Answer:
Fundamentals of Corporate Finance
ISBN: 978-0071051606
8th Canadian Edition
Authors: Stephen A. Ross, Randolph W. Westerfield