From Yahoo!Finance, identify the beta listed for the stocks of four companies: a

Question

From Yahoo!Finance, identify the beta listed for the stocks of four companies: a food service (restaurant) company called Denny's Corporation (stock symbol DENN), Amazon (AMZN), Caterpillar Inc. (CAT), and Waste Management (WM).

Apply the Capital Asset Pricing Model (CAPM) Security Market Line to estimate      the required return on Caterpillar stock.

Assumptions and Data: Note that you will need an estimate of the risk-free rate, rRF, and the market risk premium. Assume a 5% market risk premium and use the current yield on 10-year Treasury securities as an estimate of the risk-free rate. You can yields on Treasury securities from the section of “Market Data” on Finance!Yahoo’s frontpage.

Explanation / Answer

Company Ticker Beta Denny's Corporation DENN 0.46 Amazon Corporation AMZN 1.42 Caterpillar CAT 1.6 Waste Management WM 0.66 Under the Capital Asset pricing model Rs = Rf + Beta*(Rm-Rf) where Rf is the risk free rate, Rm - Rf = 5% Rf = 2.34% Required return on CAT = 2.34% + 1.6*5% Required return on CAT = .0234 + 1.6*.05 Required return on CAT = .1034 The required return on the caterpillar stock using the CAPM model = 10.34%

Related Questions

Navigate

• Browse (All)
• Browse F
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.