Expected Return: You want to find the expected return for Honeywell using the CA

Question

Expected Return: 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?

Explanation / Answer

3 month treasury yield = 0.08% Beta of Honeywell = 1.41 The only problem is that I don't have table 10,3. Therefore, I cant calculate market risk premium. CAPM = risk free rate + Beta (Risk premium - risk free eate) = 0.08% + 1.41( risk premium - 0.08%) Hope you get the way to solve it.

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