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Expected return you want to find the expected return for


Question: Expected Return. You want to find the expected return for Honeywell using the CAPM. First, you need the market risk premium. Use the average large-company stock return in Table below to estimate the market risk premium. Next, go to money .cnn.com and find the current interest rate for three-month Treasury bills. Finally, go to finance.yahoo.com, enter the ticker symbol HON for Honeywell, and find the beta for Honeywell. What is the expected return for Honeywell using CAPM? What assumptions have you made to arrive at this number?

Investment                             Average Return              Risk Premium

Large stocks                                12.3%                          8.5%

Small stocks                                17.4                           13.6

Long-term corporate bonds             6.2                             2.4

Long-term government bonds          5.8                             2.0

U.S. Treasury bills                         3.8                              -

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