Use the information in the following table. Assume that the market portfolio wil

Question

Use the information in the following table. Assume that the market portfolio will earn 9.0 percent and the risk-free rate is 2.3 percent.

  

  

Compute the required return for each company using CAPM model. (Round your answers to 2 decimal place. Omit the "%" sign in your response.)

  

  

Compute the required return for each company using constant growth model. (Round your answers to 2 decimal places. Omit the "%" sign in your response.)

  

Use the information in the following table. Assume that the market portfolio will earn 9.0 percent and the risk-free rate is 2.3 percent.

Explanation / Answer

Answer:

Using CAPM Model:

Required rate of return = Risk free rate + beta * (market return - risk free rate)

Using constant growth model

Required rate of return = D1/ P0 + growth'

Estee Lauder = 2.3% + 1.10 *(9% - 2.3%) = 9.67% Kimco Reality = 2.3% + 1.60 *(9% - 2.3%) = 13.02% Norsdrom = 2.3% + 1.95 *(9% - 2.3%) = 15.37%

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