Question

What is the Capital Assets Pricing Model for Tesla, Inc.? Please include how you determined R_F and[ R_M or (R_M – R_F)]

Answer 1

Risk free rate can be determined from the 10-year treasury bills and I have tried to take the long-term average of 10 year bonds as it will not be appropriate to take the current yield because it is time of high uncertainty and economic adversity so I have rather take an average which will be representing the average rate of return which is 4.42%.

Return of the market can be determined through return of the standard and poor 500 indices in last one year or we can even take the average of these index. I have taken the one-year rate of return for better representation since Tesla is a stock.

1 year rate of return of standard and poor 500 has been around 10%.

Beta of Tesla in the current scenario is to be taken and it is around 2

Expected rate of return= risk free rate+beta (market rate of return- risk free rate)

= (4.42+2(10-4.42)

= 15.58%

The rate of return which is expected out of Tesla is 15.58%