b. Given the beta of your company, the present yield to maturity on U.S. government bonds maturing in one year (currently about 4.5% annually) and an assessment that the market risk premium (that is - the difference between the expected rate of return on the 'market portfolio' and the risk-free rate of interest) is 6.5%, use the CAPM equation in order to find out what is the present 'cost of equity' of your company? Explain what is the meaning of the 'cost of equity'.
Using Yahoo! Finance find the value of beta for DR pepper/snapple .
a. What is the estimated beta coefficient of your company? What does this beta mean in terms of your choice to include this company in your overall portfolio?
According to the wikipedia
The Beta coefficient, is a measure of volatility of a stock or portfolio in relation to the rest of the financial market.
An asset with a beta of 0 means that its price is not at all correlated with the market; that asset is independent. A positive beta means that the asset generally follows the market. A negative beta shows that the asset inversely follows the market; the asset generally decreases in value if the market goes up.
Estimated Beta of Dr. Pepper/Snapple group is 0.98. This Beta indicates that the ...
This posting finds the value of the estimated beta coefficient for DR Pepper/Snapple, and explains how this affects the market risk premium and present yield to maturity on U.S. government bonds.