The names of the two companies are provided with there betas. See question 1.
Question: Get financial information using Yahoo Finance (found at http://finance.yahoo.com/ ) and www.money.cnn.com To find a company's beta, enter the desired stock symbol and request a basic quote. Once you have the basic quote, select the "Statistics". Scroll down this page to find the stock's beta. From Yahoo Finance obtain a report on any two companies.
1. What are the betas listed for these companies?
Coca Cola's beta is 0.82 and Pepsico's beta is 0.69
2. Apply the Capital Asset Pricing Model (CAPM) Security Market Line to estimate the required return on both stock. Note that you will need the risk-free rate and the market return.
a) To get the current yield on 10-year Treasury securities go to FinanceYahoo's at www.finance.yahoo.com -click on Market Data - U.S. Treasury Bonds. You will use the current yield on 10-year Treasury securities as the risk-free rate to estimate the required rate of return on stocks.
b) Between 1926 and 2014, the compound annual rate of return of S&P 500 is estimated a 10.5%. We will use this number as the market return.
c) Calculate the required return on both stockusingthe Capital Asset Pricing Model (CAPM) Security Market Line. Please show your work.
5. Find on the Internet the 52-weeks change of the stock price. Compare the required return on these stocks calculated using CAPM against their historical return over the last 52 weeks. Is there a difference between these returns? Are these stock overvalued, undervalued, or properly valued? Why? In accordance with your founding, is it reasonable for the investor to buy any of these stocks? Explain your answers.
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