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Alecsey [184]
3 years ago
8

Here are data on two companies. The T-bill rate is 4.8% and the market risk premium is 5.9%. Company $1 Discount Store Everythin

g $5 Forecast return 12 % 11 % Standard deviation of returns 12 % 14 % Beta 1.6 1.0 What would be the fair return for each company, according to the capital asset pricing model (CAPM)? (Round your answers to 2 decimal place
Business
1 answer:
tiny-mole [99]3 years ago
8 0

Answer and Explanation:

The computation of the fair return for each company is shown below:

Fair Return = Risk free rate of return + Beta × market risk premium

= 4.8 + 1.6 × 5.9  

= 14.24%

Now  

Everything $5 is

= 4.8 + 1 × 5.9

= 10.7%

Hence, the same should be considered

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