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The Cost of Equity Capital and the CAPM

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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%) =

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Solution Summary

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

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RE = RF + Beta(RM - RF)

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

Solution provided by:
Rachel Kozicki, PhD (IP)
Education
  • BA, Ashford University
  • MBA, Ashford University
  • Post-Master's Certificate, Northcentral University
  • PhD (IP), Northcentral University
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