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Word Count: 555
Introduction In order to analyze and apply the CAPM on the stock of Toyota one must know what the CAPM is This is a formula which is actually an abbreviation of Capital Asset Pricing Model and is used in order to find the appropriate price of an asset If we analyze the CAPM we can find the expected return of a stock such as is demanded in this case The CAPM consists of the risk-free rate the beta of the stock the risk factor of the stock and the expected return of the market The model has as follows After analyzing and solving this formula one can get the expected return that we await from the company that is being analyzed in each situation In this case the expected return of Toyota is being analyzed Analysis Starting from the risk free rate we have the rate at which one can invest in an investment with no risk Of course there is no actual investment which involves absolutely no risk and that is why the risk free rate is only a theoretical rate used In practice the risk free rate is the rate given to short-term governmental bonds or in the case of the USA the US treasury bills are being used for the determination of the risk-free rate These rates are called risk-free due to the fact that since they are governmental there is very small possibility of default of the bill So as the risk-free rate in this case the rate of the US treasury bills will be used which is at 425 Moving on to the expected return of the market this can be defined as the average return that a market offers to an outside investor when entering the market Due to insufficient data the expected return of the NYSE New York Stock Exchange for this upcoming year can be substituted by the 10-year average return of the
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