Question

Discuss whether the two companies betas are what you would expect. Be sure to explain why or why not. Calculate the returns based on the CAPM model. Be sure to state your assumptions.

Stock (Ticker Symbol)	Value Line	Yahoo! Finance
Amazon.com (AMZN)	1.1	1.41
Apple (AAPL)	0.9	0.96

Answer 1

Because most of the textbook tells us that generally, beta lie between 0.4 to 1.6, I expect that these two companies beta is right.

Company	Data
Amazon
Amazon.com's beta	1.1
Risk-Free rate	2.96%
Market Return Premium	7%
Expected rate of return for Amazon	10.66%
Apple
Apple's Beta	0.9
Risk-Free rate	2.96%
Market Return Premium	7%
Expected rate of return for Amazon	9.26%

Note:

1. Current yield on a US. 10-year treasury was 2.96% as of 2018. Therefore, I am taking it as risk-free rate.

2. The average excess historical annual return for the US stocks was 7% as of 2018. Therefore, I am taking it as a market return premium.

3. Expected rate of return = Risk-free rate + (Beta x Market Return Premium)