Calculate the required rate of return for Campbell Corp. common

Calculate the required rate of return for Campbell Corp. common stock. The stock has a beta of 1.3 and Campbell is considered a large capitalization stock. Current long-term government bonds are yielding 5.0%. (Refer to table 1-3 for equity risk premiums of large stocks).
For CAPM, the required rate of return = Risk-free rate + Beta * Equity Risk premium
Using Table 1-3 for historical equity risk premiums we find an equity risk premium of 4.4% when long-term government bonds are compared to large common stock returns.
The required rate of return for Campbell Corp. = 5.0% + 1.3*4.4% = 9.97%
a. How would your required rate of return change if you used U.S. Treasury bills for your risk-free rate? Assume the current yield on T-bills is 1.25 percent. This is an artificially low rate because the Federal Reserve is trying to stimulate the economy out of a recession.
b. How would this difference in required returns affect the value of any cash flow you would evaluate?
Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on...


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