connect FNB 100 Principles of Finance: Fall 2017 FNB 100 Final Question 17 (of 25) 17. value 4.00 points Problem 10-29 Required Return (LG3, LG7) Price Upcoming Dividend Growth Beta US Bancorp $ 36.55 $ 1.60 10.0% 1.8 Praxair 64.75 1.12 11.0 2.4 Eastman Kodak 24.95 1.00 4.5 0.5 Assume that the market portfolio will earn 12 percent and the risk-free rate is 3.5 percent. Compute the required return for each company using both CAPM and the constant-growth model. (Do not round intermediate calculations and round your final answers to 2 decimal places.) US Bancorp required return Praxair required return Eastman Kodak required return CAPM Constant-growth model % % % % % % References eBook & Resources Worksheet Problem 10-29 Required Return (LG3, LG7) Difficulty: 2 Advanced Check my work
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The CAPM formula is: Required Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate) For US Bancorp: Risk-Free Rate = 3.5% Beta = 1.8 Market Return = 12% Required Return for US Bancorp = 3.5% + 1.8 * (12% - 3.5%) Required Return for US Bancorp = 3.5% Show more…
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