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Written Assignment: CAPM Considerations
Estimates of firms using the CAPM suggest that almost 75% of firms use the CAPM as a method to calculate their costs of new equity. Given the CAPM, the formula RS = RF + b (RM - RF). where RF is the risk-free rate, and RM - RF is the difference between the expected return on the market portfolio and the risk-free rate. b is listed as the stock's beta. Provide works cited.
1) What is a company's risk-free rate? How can a company have a rate that is considered risk-free?
2) Look up the beta (b) for Microsoft (MSFT) and Apple (APPL). How do their different betas affect the two firm's cost of equities? Why do you think these betas are different, given the characteristics and type of the firm?
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