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Choose an industry and a stock within that industry and attempt to compute the return on...

Choose an industry and a stock within that industry and attempt to compute the return on equity using the CAPM model PLEASE USE NETFLIX You will need to cite the sources of your risk free rate (Rf), the average return for the industry (Rm) , and the beta factor you used. (b) Please set this up as a small excel model so variables may be altered.

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Answer #1

Company: NETFLIX

Using CAPM, Return on equity= risk free rate + (Market return-Risk free rate)*Beta

Risk free rate for Netflix: 0.65% (10 year treasury constant maturity rate; source: gurufocus economic indicators page)

Market risk premium according to gurufocus.com= 6% (premium to be given to Netflix shareholders for taking risk)

Beta= 1.11 (sensitivity of Netflix stock w.r.t market return) (source: gurufocus.com)

hence, return on equity= 0.65 + (6*1.11)= 7.31%

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