Please use the following (hypothetical) information to calculate the “cost of equity” by using the CAPM model: RE = RF + Beta(RM – RF) Nike = 20% + 0.80(7.50% – 20%) = Sony = 20% + 1.40(8.50% – 20%) = McDonald’s = 20% + 0.30(9.50% – 20%) =

The capital asset pricing model (CAPM) relates the risk return trade-off of individual assets to market returns so that a security has a risk-free rate of return and a premium for risk.

-Explain in detail the components of CAPM.
-Please also include the formula and an explanation of beta.