According to Moyer et al., the appropriate market risk premium to use in the Capital Asset Pricing Model (CAPM) is 8 to 9 percent, relative to 90-day Treasury bill rates, while the appropriate market risk premium is 7 percent, relative to long-term government bond income returns (2019). It is imperative that financial analysts use the correct market risk premium with the corresponding risk-free rate when calculating a companys cost of equity with the CAPM. In this discussion forum, you will explore the impact of the assumptions and inputs used in the CAPM on a companys calculated cost of equity.

In your post (with a minimum of 300 words):

Choose a publicly traded company. Apple (APPL)

Determine its beta from a published source. Current Beta 1.3

Hint: Use Yahoo!FinanceLinks to an external site. or NASDAQLinks to an external site. to find the companys beta.

Calculate the companys cost of equity using the CAPM formula and the short-term risk-free rate assumptions.

Use 8.5 percent as the market risk premium.

Use the current 90-day yield (3-month yield) on U.S.=5.01 Treasuries as the risk-free rate. Hint: Use the U.S. Department of the Treasurys Resource CenterLinks to an external site. to look up current 90-day (3-month) Treasury Yield Curve Rates.

Provide your calculations in a table in your post.

Calculate the companys cost of equity using the CAPM formula and the long-term risk-free rate assumptions.

Use 7.0 percent as the market risk premium.

Use the current 20-year yield on U.S. Treasuries as the risk-free rate= Which is 4.11

Provide your calculations in a table in your post.

Compare the two different conclusions of the companys cost of equity based on your two calculations (based on short-term and long-term risk-free rates).

Hypothesize (rather than calculate) how the different cost of equity estimates would impact the calculation of the weighted average cost of capital for your selected company.

Explain the reasoning of your hypothesis. In your explanation, include a discussion of the companys beta and the amount of debt the company has currently.

Ask at least one question about market risk premiums used in the CAPM formula.