Risk-free rate of interest

# Risk-free rate of interest - krf:theriskfreerateof interest...

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k rf :   the risk-free rate of  interest     j :  the beta of security j k m :  the return on the  market index Suppose the Treasury bond rate  is  6% , the average return on the  12% , and Walt  Disney has a beta of  1.8 . According to the CAPM, what  should be the required rate of  return on Disney stock? k j  = 0.06 + 1.8*(0.12 - 0.06) k j  = 0.06 + 1.8*(0.06)  k = 0.168 =  16.8%

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According to the CAPM,  Disney stock should be  priced to give a  16.8%  return. Suppose the Treasury bond rate  is  5% , the average return on the  11% , and  Gladstone Pharmaceuticals has a  beta of  0.75. According to the CAPM, what  should be the required rate of  return on Gladstone  Pharmaceutical stock? k j  = 0.05 + 0.75*(0.11 - 0.05) k j  = 0.05 + 0.75* (0.06) k j  = 0.095 =  9.5%
According to the CAPM,  Gladstone Pharmaceutical  stock should be priced to give  9.5%  return. Suppose the Treasury bond rate  is  3.5% , the average return on  8.5% , and  Union Pacific Corporation has a  beta of  1.28 . According to the CAPM, what  should be the required rate of  return on Union Pacific stock? k = 0.035 + 1.28*(0.085 -  0.035) k = 0.035 + 1.28*(0.05) k j  = 0.099 =  9.9%

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According to the CAPM,  Union Pacific stock should  be priced to give a  9.9%  return. President Faust:   “There is … a defense  against adversity:  humor .” “There is certainly no defense against  adverse fortune, but, on the whole, it will  not be so effectual if you maintain an  habitual sense of humor.” “For many years as I have blessed newborn  children, including my own, I have blessed  them with a sense of humor. I do this with
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## This note was uploaded on 11/23/2011 for the course BUS M 301 taught by Professor Jimbrau during the Summer '11 term at BYU.

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Risk-free rate of interest - krf:theriskfreerateof interest...

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