he financial controller is considering the use of the Capital Asset Pricing Model as a surrogate discount
The financial controller is considering the use of the
surrogate discount factor. The risk-free rate is 5 percent. The information in the table below
has been used by company management in calculating the stock beta value which is 1.151
and the expected return on the stock which is 12.5%.
Year Stock Market Index share Price
2011 2000 $15.00
2012 2400 $25.00
2013 2900 $33.00
2014 3500 $40.00
2015 4200 $45.00
2016 5000 $55.00
2017 5900 $62.00
2018 6000 $68.00
2019 6100 $74.00
2020 6200 $80.00
2021 6300 $83.33
e) Calculate the CAPM
f) Explain why this figure may differ from that calculated above (i.e.
– Ordinary Shares
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