Problem:
Treasury Bill rate: 0.34 Market Yield: 8%
HOME DEPOT
BETA: 0.87
0.34 + [ 0.87 x (0.08 - 0.34)]
0.34 + [ 0.87 x (-0.26)]
0.34 + [-0.226]
Kj= 0.1138
DISNEY
BETA: 1.31
0.34 + [1.31 x (0.08 - 0.34)]
0.34 + [1.31 x (-0.26)]
0.34 + [-0.341]
Kj= -0.001
Given the information provided by these two companies, Identify which company has the greater risk and the greater return. Is the risk consistent with the return for each company? By looking at each company's operations and their type of industry comment if the level of risk is justified for each company.