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What is the beta calculation of Microsoft using the CAPM, and what is the required rate...

What is the beta calculation of Microsoft using the CAPM, and what is the required rate of return in comparison to the expected returns?

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Answer #1

Using the Capital Asset pricing model, the beta can be calculated of Microsoft through establishment of following formula-

Required rate of return of Microsoft

=Risk free rate+(Beta*market risk premium)

The current risk free rate can be assumed to be 2.5% and the market risk premium can be assumed to be 2%.

These instruments are in line with the current macro situations which are indicating towards slowing demand pattern and an impending recession.

Required rate of return of Microsoft can be estimated to be 5% in such chaotic scenario.

5= 2.5+beta*2

Beta= ((5-2.5)/2)= 1.25

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