Question
Using the following information for Microsoft, calculate the Beta and then use the Capital Asset Pricing Model to compute Microsoft's required rate of return on
Using the following information for Microsoft, calculate the Beta and then use the Capital Asset Pricing Model to compute Microsoft's required rate of return on equity. (to ensure we all use the same information use the following data: shares outstanding 8,013 million shares; risk-free rate 2%, Market Risk Premium 6%)
| Month | Microsoft's Return | Market's Return |
| August, 2011 | -6.43% | -6.94% |
| September, 2011 | 6.99% | 10.91% |
| October, 2011 | -3.22% | -0.41% |
| November, 2011 | 1.49% | 1.04% |
| December, 2011 | 13.75% | 4.64% |
| January, 2012 | 8.19% | 4.34% |
| February, 2012 | 1.64% | 3.22% |
| March, 2012 | -0.74% | -0.67% |
| April, 2012 | -8.24% | -6.01% |
| May, 2012 | 4.80% | 4.06% |
| June, 2012 | -3.66% | 1.18% |
| July, 2012 | 5.27% | 2.51% |
| August, 2012 | -3.44% | 2.54% |
| September, 2012 | -4.10% | -1.82% |
| October, 2012 | -5.96% | 0.57% |
| November, 2012 | 0.34% | 0.89% |
| December, 2012 | 2.77% | 5.12% |
| January, 2013 | 2.11% | 1.28% |
| February, 2013 | 2.91% | 3.80% |
| March, 2013 | 15.69% | 1.92% |
| April, 2013 | 6.18% | 2.36% |
| May, 2013 | -1.03% | -1.33% |
| June, 2013 | -7.82% | 5.17% |
| July, 2013 | 5.64% | -3.00% |
| August, 2013 | -0.36% | 3.16% |
| September, 2013 | 6.40% | 4.63% |
| October, 2013 | 8.50% | 2.96% |
| November, 2013 | -1.89% | 2.59% |
| December, 2013 | 1.15% | -3.52% |
| January, 2014 | 2.00% | 4.55% |
| February, 2014 | 7.00% | 0.83% |
| March, 2014 | -1.44% | 0.70% |
| April, 2014 | 2.05% | 2.32% |
| May, 2014 | 1.86% | 2.06% |
| June, 2014 | 3.50% | -1.34% |
| July, 2014 | 5.92% | 3.95% |
| August, 2014 | 2.05% | -1.38% |
| September, 2014 | 1.27% | 2.36% |
| October, 2014 | 2.47% | 2.75% |
| November, 2014 | -2.84% | -0.25% |
| December, 2014 | -13.02% | -2.96% |
| January, 2015 | 9.31% | 5.62% |
| February, 2015 | -7.27% | -1.57% |
| March, 2015 | 19.63% | 0.98% |
| April, 2015 | -3.03% | 1.29% |
| May, 2015 | -5.78% | -2.03% |
| June, 2015 | 5.78% | 2.26% |
| July, 2015 | -6.19% | -6.10% |
| August, 2015 | 1.70% | -2.55% |
| September, 2015 | 18.93% | 8.51% |
| October, 2015 | 3.94% | 0.37% |
| November, 2015 | 2.08% | -1.73% |
| December, 2015 | -0.70% | -4.98% |
| January, 2016 | -6.98% | -0.08% |
| February, 2016 | 8.55% | 6.73% |
| March, 2016 | -9.70% | 0.39% |
| April, 2016 | 7.02% | 1.70% |
| May, 2016 | -3.45% | 0.35% |
| June, 2016 | 10.77% | 3.65% |
| July, 2016 | -0.18% | -0.08% |
I used the following formula in Excel for Beta: COVARIANCE.P(B2:B61,C2:C61)/VAR.PC2:C62) and came up with Beta = 108.1595676% = 1.081595676
CAPM = E(Ri) = Rf + (E(Rm) - Rf] x Bi = Risk Free Rate + Market Risk Premium x Beta = .02 + .06 x 1.0816 = 8.49%
Are these calculations correct?
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Chains Of Finance How Investment Management Is Shaped
Authors: Diane-Laure Arjalies, Philip Grant, Iain Hardie, Donald MacKenzie, Ekaterina Svetlova
1st Edition
0198802943, 978-0198802945
