Calculating The Beta Coefficient And Required Rate Of Return For Coca-Cola

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John C. Gardner
Carl B. McGowan Jr
Susan E. Moeller

Keywords

beta, characteristic line, required rate of return, Coca-Cola, teaching note

Abstract

In this paper, we demonstrate how to compute the required rate of return for Coca-Cola using modern portfolio theory with data downloaded from the internet.  We demonstrate how to calculate monthly returns for the index and 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 Coca-Cola and the S&P 500 Index in this paper, but any company listed on Yahoo! Finance can be used as the example.  This paper can be used as the basis of a lecture on intermediate corporate finance or investments to demonstrate the process using a real company.

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