For Walt Disney CompanyFind an estimate of beta for your company. You might consider examining/using an industry average beta, especially if the reported beta you find seems unrealistic or...

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For Walt Disney CompanyFind an estimate of beta for your company. You might consider examining/using an industry average beta, especially if the reported beta you find seems unrealistic or inappropriate. Note: You should probably check your beta across a few different sources, because sometimes they vary. Find the current interest rate (yield) for 3-month Treasury bills. Determine an appropriate market risk premium. Be sure toconsider the size of your firm when estimating an appropriate premium. After making your calculations:
  • Using all this information, what is the expected return for your company using CAPM?
  • In Week 3, you estimated a required rate of return using the dividend discount model. How does your CAPM number compare?
Answered Same DayDec 20, 2021

Solution

Robert answered on Dec 20 2021
3 Votes
Capital Asset Pricing Model
Capital Asset Pricing Model estimates the cost of equity on the basis of risk free rate and
expected return. It calculates the expected return on an investment which helps in the comparison
of expected return with the required rate of return so as determine whether the asset is
underpriced, overpriced or properly priced. The basic idea behind the capital asset pricing model
is that investors should get a reward for both waiting and wo
ying. The greater the wo
y, the
greater the expected return. If investment is made in a risk-free Treasury bill, then only the risk
free rate of interest will be received. When you invest in risky stocks, you can expect an extra
eturn over the risk free rate or risk premium for wo
ying, which is called as reward for
wo
ying.
Ke = Rf + Beta * (Rm – Rf)
Where,
Ke = Cost of Equity
Rf = Risk free...
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