CAPM and Expected Return Problem
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CAPM and Expected Return. The following table shows betas for several companies. Calculate
each stock's expected rate of return using the CAPM. Assume the risk-free rate of interest
is 5 percent. Use a 9 percent risk premium for the market portfolio.
Company / Beta:
Cisco 2.03
Citigroup 1.36
Merck .40
Walt Disney .84
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This solution helps with a problem regarding CAPM and expected return.
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We use the CAPM formulea; Expected return = Risk Free rate + Beta* ...
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