Assignment

In this module, you have been introduced to the capital asset pricing model (CAPM). The required return can be determined by the application of the CAPM:

Expected return = Risk-free rate + Beta (Expected market return - risk-free rate)

Fully discuss each component and its relation to the expected return calculation. In other words, how does each component impact the expected return for an investment. Next, using an investing site such as Yahoo!Finance, locate the beta for 3 companies within the same industry and calculate the expected return. For example, Pfizer, GlaxoKlineSmith ,and Johnson & Johnson are companies within the drug manufacturers industry. Discuss the meaning of the calculation including which company you would invest and why. (NOTE: For the expected return calculation use 0.08% as the risk-free rate and 8.5% for the expected market return).