Equity Cost of Capital

You need to estimate the equity cost of capital for XYZ Corp. You have the following data available regarding past returns:
Year Risk-Free Return Market Return XYZ Return
2019 3% 6% 10%
2020 1% -37% -45%
a. What was XYZ’s average historical return?
b. Compute the market’s and XYZ’s excess returns for each year. Estimate XYZ’s beta.
c. Estimate XYZ’s historical alpha.
d. Suppose the current risk-free rate is 3%, and you expect the market’s return to be 8%. Use the CAPM to estimate an expected return for XYZ Corp.’s stock.
e. Would you base your estimate of XYZ’s equity cost of capital on your answer in part (a) or in part (d)? How does your answer to part (c) affect your estimate? Explain.
Respond to all of the above questions in a Word document (formatted using the current APA style) and submit it to this dropbox.