FIN 402

University of Phoenix

Week 3 Chapter 21 CAPM Web Exercise

S&P 500 index -decreased 40% as compared to its levelon June 2009.

Increase in the Oracle approximately by 10%. S

In comparison to the market the deviations of the stock are compared by Beta. 1.5 is the estimated stock beta for Oracle, the beta is estimated to be 1 when both beta and market movement is done in the same direction, add the difference ( ) to 1 and estimate the number (Beta) .

Ki Rf bi (KM - Rf)

Rf (Risk free rate) 4.6%

(KM - Rf) Equity risk premium 6.4%

Bi (Beta) 1.5

Ki (Required rate of Return) 4.6% (1.5 * 6.4)

                                         4.6%  9.6%   14.2%

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