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The capital asset pricing model (CAPM)

In the past two weeks, you have chosen a publicly-traded company and have prepared Section 3 of the Week 5 final project. Section 3 evaluated the stock price of the company using the constant growth formula. This week, you practiced NPV calculations in the discussion, and you are working on Section 4 of the Final Project.

In Section 4, you will use the capital asset pricing model (CAPM) to calculate the company’s required rate of return. Then, using this CAPM required rate of return, you will recalculate the company’s stock price using the constant growth formula.

At this point, you have begun to develop an understanding of the value of the company’s stock. Ultimately, you will need to decide if you can recommend investing in this company’s stock (with a buy recommendation) or if you do not feel it is a good investment (a sell recommendation).

For many companies, the evidence will be quite strong in one direction or the other. For other companies, the evidence will be conflicting, and you may consider issuing a hold recommendation.



Prior to beginning work on this journal,



Record a two- to three-minute video answering the following questions:

  • What are the similarities between the time value of money formulas (from Week 3) and the NPV analysis in the Week 4 discussion?
  • What is the purpose of NPV analysis? Be sure to discuss the concepts of risk and return in your answer.
  • What are two improvements or corrections you could make to your previous assignments in preparation for the final project that is due in Week 5?
  • What is going well and what are you struggling with in regard to Weeks 3 and 4?
  • What is one question you have about the Week 4 assignment or the Week 5 final project?

Accessibility Statement: If you have a disability that impacts your ability to successfully participate in this or any other course activity, please provide your instructor with your Authorized Accommodation Form from the Office of Student Access and Wellness so that they can discuss and arrange an alternative plan with you.