2000 polnts The following table shows betas for several comp

20.00 polnts 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 4%. Use a 6% risk premium for the market portfolio. (Do not round Intermedlate caiculations. Enter your anawera as a percent roundea to decimal places.) Bela 1.16 1.38 Cost of capital Cisco Apple Coca Cola47 References Worksheet

Solution

According to CAPM, the expected return of stock is calculated as follows

R_e   = R_f + Beta ( R_m - R_f )

Expected rate of return on Cisco = 0.04 + 1.16 ( 0.06 - 0.04)

Expected rate of return on Cisco = 6.32%

Expected rate of return on Apple = 0.04 + 1.38 ( 0.06 - 0.04)

Expected rate of return on Apple = 6.76%

Expected rate of return on Hershey = 0.04 + 0.33 ( 0.06 - 0.04)

Expected rate of return on Hershey = 4.66%

Expected rate of return on Coca cola = 0.04 + 0.47 ( 0.06 - 0.04)

Expected rate of return on Coca cola = 4.94%