Explore BrainMass

Capital Asset Pricing Model of Yahoo Finance


Using Yahoo! Finance find the value of beta for Verizon wireless. Discuss the following items:

a. What is the estimated beta coefficient of your company? What does this beta mean in terms of your choice to include this company in your overall portfolio?

b. Given the beta of your company, the present yield to maturity on U.S. government bonds maturing in one year (currently about 4.5% annually) and an assessment that the market risk premium (that is - the difference between the expected rate of return on the 'market portfolio' and the risk-free rate of interest) is 6.5%, use the CAPM equation in order to find out what is the present 'cost of equity' of your company? Explain what is the meaning of the 'cost of equity'.

c. Choose two other companies, look up their "Beta" and report the names of these companies and their betas. Suppose you invest one third of your money in each of the stocks of these companies. What will the beta of the portfolio be? Given the data in (b), what will the Expected Rate of Return on this portfolio be? Do you feel that the three-stock portfolio is sufficiently diversified or does it still have risk that can be diversified away? Explain.

Make sure to demonstrate a strong understanding of the concept of beta and the risk/return trade off.

response is 658 words, includes computations

Solution Preview

Using Yahoo! Finance find the value of beta for Verizon wireless. Write a two page paper discussing the following items:

Verizon Communications, Inc. is a US telecom company and was formed in 2000 when Bell Atlantic, one of the Regional Bell Operating Companies, merged with GTE. It is the second largest wireless telecommunications network in the United States is owned and operated by Verizon Wireless. (Wikipedia, 2008).

Technology has got profound impact on this telecommunication company. Verizon is one of six carriers to use Code Division Multiple Access. It sends out codes to the cell phones so that the cell phone towers can communicate to more phones on the same frequency or channel at the same time. As per its website the enterprise utilizes the talents of hundreds of thousands more skilled people working for its suppliers worldwide. For continuous improvement in existing products and launching new products it is spending a huge amount in R&D.

Verizon's technology is also efficient and effective. Verizon Wireless has invested more than $48 billion since the ...

Solution Summary

Response discusses Capital Asset Pricing Model