This week, we discussed the concept of the CAPM (capital asset pricing model) and beta. This week, I would like to take the opportunity to apply these concepts to real world companies.
– Select a U.S. public company (Make sure to include the company name in the title page)
– Calculate the cost of equity using the CAPM for the firm
– Evaluate the results – how realistic do you believe the result to be?
– Pull the beta from at least 2 sources – discuss why they may be different
In addition, please discuss is it possible to construct a portfolio of real-world stocks that has a required return equal to the risk-free rate? Explain? If a companys beta were to double, would its required return also double?