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I'm trying to find the required rate of return for a company in 1997. From what I've been reading the historic return on the market up until that point was 6%. However, that year the 10 year treasury bond (the risk free rate) was 6.25%. With a company beta of 1.23 this gives me a required rate of return of 5.9%, which is less than the risk free rate of return. I'm not sure what to do in this situation because the required rate of return is now less than the risk free rate, which is nonsense. What should I do in this situation to find the return on equity? Should I just throw CAPM out the window?.
Additional Details Also, what alternative method should I use to calculate the required rate of return?
What should I do if market risk premium is negative?
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