Week 3 Individual Assignment

Week 3 Individual Assignment - In this web exercise, we...

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In this web exercise, we will show how to determine the required rate of return for a stock using the capital asset pricing model. 1. The formula for the capital asset pricing model is: Ki RF bi (KM RF ) (21–7) Ki is the required rate of return that we are solving for; RF is the risk-free rate, and we shall assume it is 4.6 percent; bi is the systematic risk of a stock that we will estimate; (KM RF ) is the equity risk premium or the amount the market is assumed to earn over the risk-free rate in the long term. We will use 6.4 percent in this example. 2. Now we are in a position to estimate the beta for a company and compute Ki, the required rate of return. While Value Line, Bloomberg, and other fi nancial services provide estimates of beta, they are often very different. In this exercise, we are going to have you eyeball a value for beta. Go to finance.yahoo.com . 3. Enter Oracle (ORCL) in the “Enter System” box and click “Go.” 4. Along the left margin, click on “Basic Chart.”
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This note was uploaded on 02/26/2012 for the course FIN 102 taught by Professor Franks during the Spring '12 term at University of Phoenix.

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Week 3 Individual Assignment - In this web exercise, we...

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