Question

The following information for Walt Disney Company (DIS) is available:

Yield on DIS 10-yr bond	4.5%
Market model equation (based on previous 10 yrs)	r(DIS) = 0.27 + 1.17 r(S&P)
Return of DIS last year	2.2%
Current DIS stock price	131.99
Correlation coefficient (vs. S&P500)	0.71

The following market information is available:

Security	Yield		Other info
6-month T-bill	0.12%		Historic market return over the risk-free rate	5.8%
1-yr T-bill	0.13%		Current S&P500 level	3426.96
5-yr T-note	0.30%
10-yr T-bond	0.72%
30-yr T-bond	1.46%
High quality corporate bonds	2.95%

Based on financial theory and best practices, estimate the required rate of return for DIS.

Answer 1