The CAPM beta for the equity shares of two companies, P&G and Gap, respectively, are estimated as follows:

P&Gamble Co. (NYSE: PG) : & = 1.10

The Gap Inc. (Nasdaq: GPS) : = 1.90

The risk-free rate, estimated at 5%, has been stable over the entire CAPM estimation period and will remain so in the foreseeable future as well.

Answer questions b) below. (Lecture notes p.21-24)

b) Suppose that the market risk premium (not return on the market) is estimated at 12%. Find the CAPM required returns on equity shares of P&G and Gap, respectively