Estimate the parameters of the Capital Asset Pricing Model for Delta (DAL). Find
ID: 2642215 • Letter: E
Question
Estimate the parameters of the Capital Asset Pricing Model for Delta (DAL). Find a current estimate of the risk-free rate (use the 10 year T-bond rate). Estimate the market risk premium. Make a choice and defend it. Look up the company Estimate the parameters of the Capital Asset Pricing Model for Delta (DAL). Find a current estimate of the risk-free rate (use the 10 year T-bond rate). Estimate the market risk premium. Make a choice and defend it. Look up the company Estimate the parameters of the Capital Asset Pricing Model for Delta (DAL). Find a current estimate of the risk-free rate (use the 10 year T-bond rate). Estimate the market risk premium. Make a choice and defend it. Look up the companyExplanation / Answer
Answer:
Current estimate of the risk-free rate = 8%
Estimated market risk premium = 3%
Company beta = 1.2
Using CAPM formula:
Cost of equity = Risk free rate + (marker risk premium)*beta
Cost of equity = 8% + (3%)*1.2 = 11.6%
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