If I have $25 million to invest and have a required return of 9% annum, would...

Question

Question

If I have $25 million to invest and have a required return of 9% annum, would Amazon provide this return and how do you figure that out?

business finance

Answer 1

Answer #1

The expected return (CAPM) = risk free rate + (beta * (expected market return - risk free rate))

Risk free rate is taken to be the yield on the 10-year Treasury bonds. This is 1.7%.

Expected market return is taken to be the historical average annual return on the S&P 500. This is 10%.

Beta of Amazon stock is the sensitivity of Amazon stock to changes in the market portfolio. This is taken to be 1.63 (as per Yahoo Finance).

Expected return on Amazon stock = 1.7% + (1.63 * (10% - 1.7%)) = 15.23%.

Your required returns is 9%.

Yes, Amazon would provide this return as the expected return on Amazon stock is higher than your required return.

Answer 2

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