Estimate the capm required rate of return

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Reference no: EM131034849

Topic: valuation calculation finance

Company - SEEK Limited (SEK)

Website: www.seek.com.au

Start your valuation analysis with the CAPM estimation. You need 3 variables to calculate the CAPM:

- Estimate Beta (β):

You can estimate beta by using regression analysis Or by manual calculation. Follow topic 3 lecture notes and relevant chapter (chapter 8) of the prescribed textbook to estimate the beta of the company and attach details of your work as an appendix.

  • For both approach you need to use the monthly stock price data of the company and ASX/S&P200 to estimate return for five years
  • Then adjust the raw beta using appropriate methodology (refer to topic 3 lecture notes).

- Risk-Free Rate of Return: Take the 10 year Govt. bond yield rate as a proxy for RFR

- Risk Premium: It is the difference between expected market return [E(Rm)] and RFR

  • You can use the historical 10-year E(Rm) of 9.858% [source: Bloomberg]
  • Do you think this 9.858% return is the correct prediction for Australian market: provide justification?

Once you estimate the CAPM required rate of return denoted as E(Re) following the steps above, you can use this return (also known as cost of equity, ke) in the valuation model.

Attachment:- Assignment.rar

Reference no: EM131034849

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