Question

1. Using CAPM, calculate the Expected Return for Apple and Microsoft. Get the relevant market related data, such as the “risk-free rate” and “market return”, and describe which rate you are using from the financial markets

	Year	Microsoft	Apple	Market
Jan 2010 - Dec 2010	1	-0.34%	5.18%	14.93%
Jan 2011 - Dec 2011	2	-0.37%	7.93%	2.06%
Jan 2012 - Dec 2012	3	0.40%	5.15%	15.84%
Jan 2013 - Dec 2013	4	2.81%	5.99%	32.21%
Jan 2014 - Dec 2014	5	1.91%	4.62%	13.53%
Jan 2015 - Dec 2015	6	1.75%	3.32%	1.34%
Jan 2016 - Dec 2016	7	1.37%	3.94%	11.80%
Jan 2017 - Dec 2017	8	2.72%	2.84%	21.69%
Jan 2018 - Dec 2018	9	1.41%	2.13%	-4.45%
Jan 2019 - Dec 2019	10	4.06%	5.58%	31.29%
Average Return		1.57%	4.67%	14.02%
Std Deviation		1.42%	1.69%	12.21%
Correlation with the market		0.61	0.29	1.00
Beta		0.07	0.04	1.00

Answer 1

For Calculating return using CAPM model,

Risk Free Rate (Rf) is taken as the US rate of 10-years treasury bond which is a minimum return a person would aspect. The rate is 0.67%. The 10-year rate is being used because the data of the companies had been given for 10 years.

Market Return (Rm) would be 14.02% as given in the question, the average return attributed in the market.

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