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The following table shows betas for several companies. Calculate each stocks expected rate of return using the CAPM. Assume

The following table shows betas for several companies. Calculate each stock's expected rate of return using the CAPM. Assume the risk-free rate of interest is 9%. Use a 11% risk premium for the market portfolio. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) 

  

CompanyBetaCost of Capital
Caterpillar1.78
Apple1.42
Johnson & Johnson0.61
Consolidated Edison0.33


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Answer #1
Caterpillar CAPM RETURN = Risk free Return + (Market Risk Premium)* Beta
CAPM RETURN = 9% + 11% * 1.78
CAPM RETURN = 28.58%
Apple CAPM RETURN = Risk free Return + (Market Risk Premium)* Beta
CAPM RETURN = 9% + 11% * 1.42
CAPM RETURN = 24.62%
Johnson & Johnson CAPM RETURN = Risk free Return + (Market Risk Premium)* Beta
CAPM RETURN = 9% + 11% * 0.61
CAPM RETURN = 15.71%
Consolidated Edison CAPM RETURN = Risk free Return + (Market Risk Premium)* Beta
CAPM RETURN = 9% + 11% * 0.33
CAPM RETURN = 12.63%
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