Corporate Finance: Instructor\'s Manual Applied Corporate Finance

Aswath Damodaran 118

Estimating Expected Returns for Disney in September 2004

! Inputs to the expected return calculation

• Disney’s Beta = 1. 01


• Riskfree Rate = 4. 00 % (U.S. ten-year T.Bond rate)


• Risk Premium = 4. 82 % (Approximate historical premium: 1928 - 2003 )
  ! Expected Return = Riskfree Rate + Beta (Risk Premium)
  = 4. 00 % + 1. 01 ( 4. 82 %) = 8. 87 %

Note that this expected return would have been different if we had decided to

use a different historical premium or the implied premium.