MOD 3 SLP FIN1 - Capital Asset Pricing Model RODNEY...

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Capital Asset Pricing Model 1 RODNEY BUCKMIRE FIN 301 – Principles of Finance Module 3 Session Long Project
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Capital Asset Pricing Model 2 The Value of Beta for AutoZone Incorporated The estimated beta coefficient of AutoZone Inc. is .43. AutoZone’s overall beta has less risk then the average portfolio risk on rate of returns. If beta (risk) is higher when compared to the average of about 1.0, the risk increases. Although making a decision to invest or not is complex, investors can keep in mind; a higher beta has the potential to produce a high expected rate of return. Because AutoZone’s risk is lower than the average, it should maintain a steady rate of return and in general lessen stock risk. Therefore the overall portfolio diversification risk does not increase. The present ‘cost of equity’ of AutoZone Inc. is 7.30%. Ce = Km x B + Rf .065 x .43 + .045 = 7.30% AutoZone at a minimum should offer shareholders or investors at least 7% rate of return to compensate for the amount of time you wait on returns, and for accepting some level of risk.
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MOD 3 SLP FIN1 - Capital Asset Pricing Model RODNEY...

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