Question

Nestlé of Switzerland is revisiting its cost of equity analysis. As a result of extraordinary actions by the Swiss Central Bank, the Swiss bond index yield (10-year maturity) has dropped to a record low. The Swiss equity markets have been averaging returns, while the Financial Times global equity market returns, indexed back to Swiss francs, stands at %. Nestlé's corporate treasury staff has estimated the company's domestic beta at , but its global beta (against the larger global equity market portfolio) at . a. What is Nestlé's cost of equity based on the domestic portfolio for a Swiss investor? b. What is Nestlé's cost of equity based on a global portfolio for a Swiss investor?

          Nestlé of Switzerland is revisiting its cost of equity analysis. As a result of extraordinary actions by the Swiss Central Bank, the Swiss bond index yield (10-year maturity) has dropped to a record low. The Swiss equity markets have been averaging returns, while the Financial Times global equity market returns, indexed back to Swiss francs, stands at %. Nestlé's corporate treasury staff has estimated the company's domestic beta at , but its global beta (against the larger global equity market portfolio) at .

a. What is Nestlé's cost of equity based on the domestic portfolio for a Swiss investor?
b. What is Nestlé's cost of equity based on a global portfolio for a Swiss investor?

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