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The Cost of Equity Capital and the CAPM

Please use the following (hypothetical) information to calculate the "cost of equity" by using the CAPM model:

RE = RF + Beta(RM - RF)

Nike = 20% + 0.80(7.50% - 20%) =

Sony = 20% + 1.40(8.50% - 20%) =

McDonald's = 20% + 0.30(9.50% - 20%) =

Solution Preview

RE = RF + Beta(RM - RF)

Nike = 20% + 0.80(7.50% - 20%)
= 20% + 0.80(-0.125)
= ...

Solution Summary

This solution contains a step by step calculation for the cost of equity using the CAPM model.

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