Suppose that you have estimated the CAPM betas for the equity shares of the following two firms: Levi Strauss & Co. ( NYSE: LEVI): \beta ^LEVI = 1.10 Tesla Inc. (Nasdaq: TSLA):\beta ^ TSLA = 1.90 Assume that the risk - free rate is estimated at 4%, stable over the entire CAPM estimation period, and will remain in the foreseeable future. Answer questions a) and b) below. (Lecture notes p.12, pp.15-17) Suppose the expected return on S&P 500 index, a proxy for the market portfolio, is estimated at 17%. Find the CAPM required returns on equity shares of Levi's and Tesla, respectively. Answer (show the steps/calculation toward your results): Suppose the market risk premium is estimated at 9%. Find the CAPM required returns on equity shares of Levi's and Tesla, respectively. Answer (show the steps/calculation toward your results):

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Suppose that you have estimated the CAPM betas for the equity shares of the following two firms: Levi Strauss & Co. (
NYSE: LEVI): \beta ^ LEVI = 1.10 Tesla Inc. (Nasdaq: TSLA) : \beta ^ TSLA = 1.90 Assume that the risk - free rate is
estimated at 4%, stable over the entire CAPM estimation period, and will remain in the foreseeable future. Answer
questions a) and b) below. (Lecture notes p.12, pp.15-17) Suppose the expected return on S&P 500 index, a proxy for the
market portfolio, is estimated at 17%. Find the CAPM required returns on equity shares of Levi's and Tesla, respectively.
Answer (show the steps/calculation toward your results): Suppose the market risk premium is estimated at 9%. Find the
CAPM required returns on equity shares of Levi's and Tesla, respectively. Answer (show the steps/calculation toward your
results):
Transcribed Image Text:Suppose that you have estimated the CAPM betas for the equity shares of the following two firms: Levi Strauss & Co. ( NYSE: LEVI): \beta ^ LEVI = 1.10 Tesla Inc. (Nasdaq: TSLA) : \beta ^ TSLA = 1.90 Assume that the risk - free rate is estimated at 4%, stable over the entire CAPM estimation period, and will remain in the foreseeable future. Answer questions a) and b) below. (Lecture notes p.12, pp.15-17) Suppose the expected return on S&P 500 index, a proxy for the market portfolio, is estimated at 17%. Find the CAPM required returns on equity shares of Levi's and Tesla, respectively. Answer (show the steps/calculation toward your results): Suppose the market risk premium is estimated at 9%. Find the CAPM required returns on equity shares of Levi's and Tesla, respectively. Answer (show the steps/calculation toward your results):
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