Estimate the expected return for each company according to CAPM.

Business & Finance homework help| Business & Finance homework help

Company A
You can calculate the expected return of Company A using CAPM by following this formula: Expected Return = Risk-Free Rate + Beta x Market Risk Premium If we assume a rate of risk free of 2%, beta equal to 1.2, and market risk premium equal to 8%, then the anticipated return of Company B can be calculated as 10.4%.

Company B
Like Company A, Company B’s expected return according to CAPM is also possible. The same formula can be used for the calculation of Company C. If we assume a risk-free interest rate of 2.2% and a beta value of 0.9, with a market premium of 8.8%, then the estimated return for Company A is 7.8%.

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