Finding the Cost of Equity Using the CAPM (Five Parts, 30 Points) Do not share your exam! 1) Make a scatter plot of firm excess returns and market excess returns. Show the trendline and the equation for the line. Try to label each axis and put a title on your graph. 2) Use the annual market returns, firm returns, and risk free rates to find the beta of ABC Corp, i.e. without getting information from your trendline and graph. Show your work in the box below. 3) If the 10-year Treasury yield is 2.25% and the expected market risk premium is 8%, what is ABC. Corp's cost of equity according to the CAPM? Put your work in the box below. 4) Use your calculated cost of equity to find the current trading price of ABC Corp. ABC just paid a dividend of $2.75. It is expected that dividends grow at 7% in years 1-5 and then 3.5% forever. (1) Year Market Portfolio (Raw return) ABC Corp. (Raw return) Risk Free Rate (2) Beta 1 11.90% 14.40% 0.10% 2 0.40% -22.20% 0. 10% (3) CAPM Re 3 26.90% 47.50% 0. 10% 4 -8.60% 7.70% 0. 10% 5 22.80% 42.80% 0.10% 6 16.50% 30.70% 0. 10% (4) 7 12.50% 11.40% 0.10% 8 -10.06% -32.50% 0. 10% 9 23.90% 30.50% 0.10% 10 11.10% 1.80% 0. 10% 11 -8.50% -6.20% 0.10% 22157622 3.90% 22.30% 0. 10% 13 14.30% 4.30% 0.10% 14 19.10% 6.50% 0. 10% -14.70% -37.80% 0.10% -26.50% -27.60% 0. 10% 120.00% 37.30% 97.10% 0. 10% 100.00% 18 23.80% 45.85% 0. 10% 19 80.00% -7.15% -11.25% 0. 10% 20 12.16% -4.70% 0. 10% 60.00% 40.00% 20.00% 0.00% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 -20.00% -40.00% -60.00% Market Portfolio (Raw return) ABC Corp. (Raw return) Corp. Risk Free Rate Rate