You want to find the expected return for Honeywell using the CAPM. First, you need the market risk premium. Use the average large-company stock return in Table 10.3 to estimate the market risk premium. Next, go to money.cnn.com and find the current interest rate for three-month Treasury bills. Finally, go to finance.yahoo.com, enter the ticker symbol HON for Honeywell, and find the beta for Honeywell. What is the expected return for Honeywell using CAPM? What assumptions have you made to arrive at this number?

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TABLE 10.3 Average annual returns and risk premiums: 1926-2008 Average Return Risk Premium Investment Large stocks Small stocks Long-term corporate bonds Long-term govemment bonds U.S. Treasury bills 11.7% 16.4 7.9% 12.6 6.2 2.4 6.1 2.3 3.8