Suppose you have the estimates of the CAPM beta for the equity shares of the following firms:
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Question:
Suppose you have the estimates of the CAPM beta for the equity shares of the following firms:
- Levi Strauss & Co. (NYSE: LEVI) : = 1.10
- Tesla Inc. (Nasdaq: TSLA) : = 1.90
Assume the risk-free rate is estimated at 4% and has been stable over the entire CAPM estimation period and will remain so in the foreseeable future as well. Answer questions (a) and (b) below.
- Suppose the expected return on S&P 500 index, a proxy for the market portfolio, is estimated at 14%. Find the CAPM required return on equity shares of Levi's and Tesla, respectively.
Answer (show the steps/calculation toward your results):
- Suppose the market risk premium is estimated at 12%. Find the CAPM required return on equity shares of Levi's and Tesla, respectively.
Answer (show the steps/calculation toward your results):
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ISBN: 978-1285190907
8th edition
Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
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