Question: Given the data provided what is the expected return for Target's common stock using the Capital Asset Pricing Model? Risk free Treasury Bond 0.07 Bonds

Given the data provided what is the expected return for Target's common stock using the Capital Asset Pricing Model?

Risk free
Treasury Bond 0.07
Bonds Data
inflation (5 years) 0.02
inflation (next 5) 0.01
MRP (formula) 0.001 X (tm-1) tm = maturity
DRP 0.001
LP 0.001
Maturity 10
Bonds outstanding (semi annual)
Currrent Price $1,154
coupon rate 12.0%
Years to Maturity 15
Par Value 1000
Preferred stock
Par value $100
Dividend Rate 10.0%
Current price $111
Common Stock
Current price $50.00
Last dividend $4.19
Growth rate 5.0%
Beta 1.2
Market return 13%
Consultant's Forecasts of the project's returns
Economic Conditions Prob Return
Strong 50% 20%
Normal 30% 10%
Weak 20% -28%

a. 9.5%

b. 14.2%

c. 21.6%

d. None of the options

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