Question
Here are data on two companies. The T-bill rate is 4% and the market risk premium is 6%. Company $1 Discount Store Everything $5 Forecasted
Here are data on two companies. The T-bill rate is 4% and the market risk premium is 6%.
| Company | $1 Discount Store | Everything $5 |
| Forecasted Return Standard Deviation of Returns Beta | 12% 8% 1.5 | 11% 10% 1.0 |
What would be the fair return for each company, according to the capital asset pricing model (CAPM)? Explain how the CAPM is used to perform this calculation and how a financial advisor would utilize this information to advise a client.
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Practical Financial Management
Authors: William R. Lasher
6th Edition
1439080496, 978-1439080498
