Assume the bond yields on 10-year US government bonds are 3.5
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Assume the bond yields on 10-year US government bonds are 3.5

Question 5

Below is a printout of General Electric data from Yahoo Finance from May 10, 2023. You are to answer the following questions:

A)      Assume the bond yields on 10-year US government bonds are 3.5% and the US market risk premium is 5.6%. What is the appropriate rate of return for General Electric?

B)  When you were speaking to a colleague, your colleague told you that they had looked up General Electric after their year-end reports were published a few years ago and was convinced that the Beta of GE was 1.05. Why would Yahoo be showing a different number?

C) Assume that GE has $100 billion (B) of debt outstanding with an average yield to maturity of 5% and no preferred shares. What is its WACC? Assume a tax rate of 30%.


Hint
Accounts & Finance" The appropriate rate of return for a stock is typically calculated using the Capital Asset Pricing Model (CAPM), which takes into account the risk-free rate (yield on 10-year US government bonds), the market risk premium, and the stock's beta (a measure of the stock's sensitivity to market movements).The formula for calculating the expected rate of return using CAPM is:Expe...
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