Answer question 1What is the difference between the Capital Asset Pricing Model Material on the...

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Answer question 1What is the difference between the  	Capital Asset Pricing Model 	Material on the Dividend Growth Model 	The Arbitrage Pricing Theory  Answer Question 2Which of the 3 models above is the best one for estimating the required rate of return (or discount rate) for Raytheon Corp.  	Ease of use of these three models 	Accuracy of each of these 3 Models 	How realistic are the assumptions of each model  Information for Question 3The cost of equity (discount rate) can also be determined by using the Capital Asset Pricing Model (CAPM). Calculating the cost of equity using CAPM model is often more difficult than using the dividend discount model. The companies’ financial statements do not show the cost of equity.The following table shows necessary (hypothetical) information to calculate the cost of equity by using CAPM model:  	 		 			Company 			Listing 			RRF 			RM 			ßj 		 		 			Nike Inc. 			NYSE: NKE 			0.40% 			6.50% 			0.90 		 		 			Sony Corporation 			NYSE: SNE 			0.40% 			9.50% 			1.60 		 		 			McDonald’s Corporation 			NYSE: MCD 			0.40% 			8.50% 			0.40 		 	  E(rj)= RRF + b(RM - RRF)E(rj) - The cost of equityRRF - Risk free rate of returnßj - Beta of the securityRM - Return on market portfolioQuestion 3Based on the above information, which company has higher cost of equity? Why? Please explain your reasoning in brief. (Show work)CAPM model shows that risk free rate of return, return on market portfolio, and company beta determine the cost of equity.

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Answer Question 2
Which of the 3 models above is the best one for estimating the required rate of return (or discount rate) for Raytheon Corp.
A) Ease of use of these three models
B) Accuracy of each of these 3 Models
C) How realistic are the assumptions of each model
Solution:

Answer question 1 What is the difference between the Capital Asset Pricing Model Material on the Dividend Growth Model The Arbitrage Pricing Theory Answer Question 2 Which of the 3 models above is the...

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Company	Listing	R_RF	R_M	ß_j
Nike Inc.	NYSE: NKE	0.40%	6.50%	0.90
Sony Corporation	NYSE: SNE	0.40%	9.50%	1.60
McDonald’s Corporation	NYSE: MCD	0.40%	8.50%	0.40