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FIN 402 - Week 3 - CAPM Web Exercise

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FIN 402
University of Phoenix
Week 3 Chapter 21 CAPM Web Exercise

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S&P 500 index - decreased 40% as compared to its level on June 2009.
Increase in the Oracle approximately by 10%. S
In comparison to the market the deviations of the stock are compared by Beta. 1.5 is the
estimated stock beta for Oracle, the beta is estimated to be 1 when both beta and market
movement is done in the same direction, add the difference (0.40 + 0.10) to 1 and
estimate the number (Beta) 1.50.
Ki = Rf + bi (KM - Rf)
Rf (Risk free rate) = 4.6%
(KM – Rf) Equity risk premium = 6.4%
Bi (Beta) = 1.5
Ki (Required rate of Return) = 4.6% + (1.5 * 6.4)
= 4.6% + 9.6% = 14.2%
McDonalds (MCD): Ki = Rf + bi (KM - Rf)
Rf = 4.6%
(KM – Rf) = 6.4%
Bi (Beta) = 1.55
Ki (Required rate of Return) = 4.6% + (1.55 x 6.4)

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FIN 402 University of Phoenix Week 3 Chapter 21 CAPM Web Exercise S&P 500 index -?decreased 40% as compared to its level?on June 2009. Increase in the Oracle approximately by 10%. S In comparison to the market the deviations of the stock are compared by Beta. 1.5 is the estimated stock beta for Oracle, the beta is estimated to be 1 when both beta and market movement is done in the same direction, add the difference (0.40 + 0.10) to 1 and estimate the number (Beta) 1.50. Ki = Rf + bi (KM - Rf) Rf (Risk free rate) = 4.6% (KM - Rf) Equity risk premium = 6.4% Bi (Beta) = 1.5 Ki (Required rate of Return) = 4.6% + (1.5 * 6.4) = 4.6% + 9.6% = 14.2% McDonalds (MCD): Ki = Rf + bi (KM - Rf) Rf = 4.6% (KM - Rf) = 6.4% Bi (Beta) = 1.55 Ki (Required rate of Return) = 4.6% + (1.55 x 6.4) = 4.6% + 9.92% = 14.52% Bank of America: (BAC): Ki = Rf + bi (KM - Rf ) Rf = 4.6% (KM - Rf) = 6.4% Bi (Beta) = 0.50 Ki (Required rate of Return) = 4.6% + (0.50 x 6.4) ...
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