Question
a)The following table shows betas for several companies. Calculate each stock's expected rate of return using CAPM. Assume the risk free rate of interest is
a)The following table shows betas for several companies. Calculate each stock's expected rate of return using CAPM. Assume the risk free rate of interest is 9 percent. Use a 6 Percent risk premium for the market portfolio.
CompanyBeta
Cisco 2.03
CitiGroup 1.63
Merck 0.50
Walt Disney 0.74
b)If the expected rate of return on the market portfolio is 14 percent and T- bills yield is 6 percent, what must be the beta of a stock that investors expect to return 10 percent?
c)You have equal investment in all four stocks given in part (b) of this question. What would be your portfolio beta?
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Management Accounting Information for Decision-Making and Strategy Execution
Authors: Anthony A. Atkinson, Robert S. Kaplan, Ella Mae Matsumura, S. Mark Young
6th Edition
978-0137024971
