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How do calculate the capm

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Reference no: EM132993383

The financial controller is considering the use of the Capital Asset Pricing Model as a 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

Problem 1: Calculate the CAPM

Problem 2: Explain why this figure may differ from that calculated above (i.e. Cost of equity - Ordinary Shares)

Reference no: EM132993383

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