Cost of Equity and beta
1. I have selected a company for my project of Walmart. It has a beta coefficient of ( .2)
If I know that the present yield on US government bonds maturing in one year(about 4.5% annually) and an assessment that the market risk premiums 6.5% (the difference between the expected rate of return on the market portfolio and the risk free rate) If I used the CAPM equation what would be the cost of equity on my company WalMart (WMT)?
2. If I used my company WalMart (b=.2) and I picked 2 other companies and knew their betas, for example Starbucks(b=1.35) and McDonalds (b-=1) and i invested 1/3 of my money in each of these stocks of these companies, what would be the beta of my portfolio be? Would the 3 stock portfolio be sufficiently diversified or would it still have a diversified risk that can be diversified away?
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