Question
1.use the two companies NKE and UAA.What are the respective betas for NKE and UAA. Use...
1.use the two companies NKE and UAA.What are the respective betas for NKE and UAA. Use YahooFinance.com to determine this.
2) Assuming that the risk-free rate is 1.5% and the historical return on the S&P 500 is 11%, what is the required return of NKE & UAA’s equity? Use the CAPM.
Answers
NKE Beta = 0.83
UAA Beta = 0.53
Required rate of return as per CAPM = risk-free rate + (historical return on the S&P 500 - risk-free rate) * beta
Required rate of return:
NKE = 1.5 + (11-1.5) * 0.83 = 9.39%
UAA = 1.5 + (11-1.5) * 0.53 = 6.54%
NKE requires a higher rate of return compared to UAA due to NKE's higher beta.
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