CHAPTER 4

Calculating the Beta Coefficient and Required Rate of Return for Coca-Cola

In Chapter 4, we demonstrate how to compute the required rate of return for Coca-Cola using modern portfolio theory (MPT) with data downloaded from the Internet. We demonstrate how to calculate monthly returns for the S&P 500 stock index and for Coca-Cola and how to use the returns to compute the beta coefficient and the required rate of return using the downloaded data. We show how to validate the data for the market index and the company and how to compute the returns using the dividend and stock split–adjusted prices. We demonstrate how to graph the characteristic line for Coca-Cola and use the graph to check that the regression was run correctly. We use ...

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