Anna is a VP at the J Corporation. The company is considering investing in a new factory and Anna must decide whether it is a feasible project. In order to assess the viability of the project, Anna must first calculate the rate of return that equity holders expect from the company stock. The annual returns for J Corp and for a market index are given below. Currently the risk-free rate of return is 1.4% and the market risk-premium is 4.2%
a. What is the beta of J Corp's Stock? (Round to 2 decimal)
b. Using the CAPM model what is the expected rate of return of J Corp stock for the coming year? (Round to one-hundred of a percent)
|
Year
|
J Corp. Return (%)
|
Market Return (%)
|
|
1
|
-3.76
|
-4.90
|
|
2
|
7.07
|
8.64
|
|
3
|
10.11
|
12.44
|
|
4
|
10.11
|
12.44
|
|
5
|
-10.72
|
-13.60
|
|
6
|
12.83
|
15.84
|
|
7
|
13.47
|
16.64
|
|
8
|
10.61
|
13.06
|
|
9
|
6.48
|
7.90
|
|
10
|
7.87
|
9.64
|
|
11
|
-4.25
|
-5.51
|
|
12
|
-4.32
|
-5.60
|