For Walt Disney CompanyFind an estimate of beta for your company. You might consider...

Question

For Walt Disney CompanyFind an estimate of beta for your company. You might consider 
examining/using an industry average beta, especially if the reported 
beta you find seems unrealistic or inappropriate. Note: You 
should probably check your beta across a few different sources, because 
sometimes they vary. Find the current interest rate (yield) for 3-month 
Treasury bills. Determine an appropriate market risk premium. Be sure to
 consider the size of your firm when estimating an appropriate premium. After making your calculations: Using all this information, what is the expected return for your company using CAPM?In Week 3, you estimated a required rate of return using the dividend discount model. How does your CAPM number compare?

Robert · Accepted Answer

Capital Asset Pricing Model 
Capital Asset Pricing Model estimates the cost of equity on the basis of risk free rate and 
expected return. It calculates the expected return on an investment which helps in the comparison 
of expected return with the required rate of return so as determine whether the asset is 
underpriced, overpriced or properly priced. The basic idea behind the capital asset pricing model 
is that investors should get a reward for both waiting and worrying. The greater the worry, the 
greater the expected return. If investment is made in a risk-free Treasury bill, then only the risk 
free rate of interest will be received. When you invest in risky stocks, you can expect an extra 
return over the risk free rate or risk premium for worrying, which is called as reward for 
worrying. 
Ke = Rf + Beta * (Rm – Rf) 
Where,

For Walt Disney CompanyFind an estimate of beta for your company. You might consider examining/using an industry average beta, especially if the reported beta you find seems unrealistic or...

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