Consider three companies, A, B, and C. Suppose that a common stock analyst estimates that the market risk premium is 5% and the risk-free rate is 4.63%.
The analyst estimated the beta for each company to be as follows: Company A, 0.9; Company B, 1.0, and; Company C, 1.2.
The analyst uses to CAPM to estimate the discount rate. The CAPM says that the expected return is equal to the risk-free rate plus the product of the market risk premium and the company's beta.
What is the estimated discount rate for each company?