In previous chapters we learned about using various interest
rates in finance. In Chapter 5, we used interest to discount future
cash flow, in Chapter 7 we evaluated bond coupons and yield to
maturity. Describe and contrast in a few sentences “expected
return” on stocks to previous concepts regarding returns on
investments. Also list the two components of stock return.
What do we use the Capital Asset Pricing
Model (“CAPM”) for? What does it tell
us?
Re Apple, Inc. –
Look up Apple’s Beta. Using Apple’s beta,
and if the market return on all stocks is 10% and the risk free
rate of return is 1%, what is the “expected return”
for Apple using CAPM? Show your work.
