You have assigned the following values to these three firms:  PriceUpcoming DividendGrowthBeta  Estee Lauder$50.00$1.7016.50%0.74  Kimco Realty82.001.6811.001.51  Nordstrom10.000.6013.001.02Assume that the market portfolio will earn 15.50 percent and the risk-free rate is 6.40 percent. Compute the required return for each company using both CAPM and the constant-growth model. (Do not round intermediate calculations and round your final answers to 2 decimal places.) CAPMConstant-Growth ModelEstee Lauder required return____.__%____.__%Kimco Realty required return____.__%____.__%Nordstrom required return____.__%____.__%

Question
Asked Nov 4, 2019
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You have assigned the following values to these three firms:
 

  Price Upcoming Dividend Growth Beta
  Estee Lauder $50.00 $1.70 16.50% 0.74
  Kimco Realty 82.00 1.68 11.00 1.51
  Nordstrom 10.00 0.60 13.00 1.02


Assume that the market portfolio will earn 15.50 percent and the risk-free rate is 6.40 percent. Compute the required return for each company using both CAPM and the constant-growth model. (Do not round intermediate calculations and round your final answers to 2 decimal places.)

  CAPM Constant-Growth Model
Estee Lauder required return ____.__% ____.__%
Kimco Realty required return ____.__% ____.__%
Nordstrom required return ____.__% ____.__%
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Expert Answer

Step 1

Calculation of required rate of return by using CAPM:

The returns as per as CAPM are 13.13%, 20.14% and 15.68%

The formula for calculating required rate of return in CAPM model is,

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Retun RR-R )B

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Step 2

Estee Lauder:

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Retun R +(RR )ß =6.40%+(15.50%-6.40%) 0.74 13.130

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Step 3

Kimco Reality:

...
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Return = R +(R-R, ) 6.40%+(15.50%-6.40%)1.51 20.140%

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