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Hello, the stock I was assigned is COST ( Costco Wholesale Corporation). I need to answer...

Hello, the stock I was assigned is COST ( Costco Wholesale Corporation). I need to answer the following question:

Estimate discount rate using CAPM (Please provide details on your estimation. You need to estimate risk free rate and market risk premium. A reasonable risk free rate should be between 2%-4% and reasonable risk premium should be between 4%-10%).

Can you help me out?

BETA VALUE 1.07

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Answer #1

CAPITAL ASSETS PRICING MODEL

RISK FREE RETURN + BETA( RISK FREE MKT PREMIUME)

NOTE:- LET RISK FREE RETURN IS 3%

AND RISK MKT PREMIUM IS 7%

BETA IS 1.07 THEN CAPM

CAPM = 3% + 1.07(7%)

= 10.49%

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