Task: Please check CAPM calculations for Nike, Sony and McDonalds.
CAPM would calculate Nike's current cost of equity at 2.859%
RE = RF + Beta(RM - RF)
RE = 20% + 0.91(7.50% - 20%)
RE = 2.859%
This calculation is based on a variable market rate of return and a risk free rate. Using a variable market rate of return may be appropriate in comparing companies assuming the market rate is risk-adjusted.
CAPM would calculate Sony's current cost of equity at 2.148%
RE = RF + Beta(RM - RF)
RE = 20% + 1.48(8.50% - 20%)
RE = 2.148%
CAPM would calculate McDonald Corporation current cost of equity at 2.036%
RE = RF + Beta(RM - RF)
RE = 20% + 0.36(9.50% - 20%)
RE = 2.036%