RISK AND RETURN

Risk and Return of Single Asset

Expected Retun
Year F G H
2013 0.16 0.17 0.14
2014 0.17 0.16 0.15
2015 0.18 0.15 0.16
2016 0.19 0.14 0.17
Expected Return 0.1750 0.1550 0.1550
Standard Deviation 0.0129 0.0129 0.0129

Risk and Return of Portfolio

Expected Return

Portfolio W(F) W(G) W(H)

Alt 1 1.00
Alt 2 0.50 0.50
Alt 3 0.50 0.5

Risk Alt 1
Portfolio Risk 1.29%

Risk Alt 2
Coefficient of Correlation (0.75)
wFsF w2s2
wFsF 0.00416667% -0.00312500%
w2s2 -0.00312500% 0.00416667%
Variance 0.00208333%
Standard Deviation 0.456%

Risk Alt 3
Coefficient of Correlation 0.75
w1s1 w2s2
w1s1 0.000041667 0.000031250
w2s2 0.000031250 0.000041667
Variance 0.000145833
Standard Deviation 0.0121
Coefficient of Variation

Alt 1 0.0738
Alt 2 0.0277
Alt 3 0.0732
Expected Return
17.50% 1.94
16.50%
16.50%
THE COST OF CAPITAL

Cost of Debt

Par Value 100.00 Par Value Nike in Indonesia

Price 95.60
Coupon Rate 6.75% per semi annual
Maturity 25.00 years

Using Bond IRR

Cash Flows
Time Cash Flow Type
Coupon
Period 0 Buy Bonds
Period 1 Coupon Payment 6.75
Period 2 Coupon Payment 6.75
Period 3 Coupon Payment 6.75
Period 4 Coupon Payment 6.75
Period 5 Coupon Payment 6.75
Period 6 Coupon Payment 6.75
Period 7 Coupon Payment 6.75
Period 8 Coupon Payment 6.75
Period 9 Coupon Payment 6.75
Period 10 Coupon Payment 6.75
Period 11 Coupon Payment 6.75
Period 12 Coupon Payment 6.75
Period 13 Coupon Payment 6.75
Period 14 Coupon Payment 6.75
Period 15 Coupon Payment 6.75
Period 16 Coupon Payment 6.75
Period 17 Coupon Payment 6.75
Period 18 Coupon Payment 6.75
Period 19 Coupon Payment 6.75
Period 20 Coupon Payment 6.75
Period 21 Coupon Payment 6.75
Period 22 Coupon Payment 6.75
Period 23 Coupon Payment 6.75
Period 24 Coupon Payment 6.75
Period 25 Coupon Payment 6.75
Period 26 Coupon Payment 6.75
Period 27 Coupon Payment 6.75
Period 28 Coupon Payment 6.75
 Period 29 Coupon Payment 6.75
Period 30 Coupon Payment 6.75
Period 31 Coupon Payment 6.75
Period 32 Coupon Payment 6.75
Period 33 Coupon Payment 6.75
Period 34 Coupon Payment 6.75
Period 35 Coupon Payment 6.75
Period 36 Coupon Payment 6.75
Period 37 Coupon Payment 6.75
Period 38 Coupon Payment 6.75
Period 39 Coupon Payment 6.75
Period 40 Coupon Payment 6.75
Period 41 Coupon Payment 6.75
Period 42 Coupon Payment 6.75
Period 43 Coupon Payment 6.75
Period 44 Coupon Payment 6.75
Period 45 Coupon Payment 6.75
Period 46 Coupon Payment 6.75
Period 47 Coupon Payment 6.75
Period 48 Coupon Payment 6.75
Period 49 Coupon Payment 6.75
Period 50 Coupon & Principal Payment 6.75
Yield to Maturity (Bond IRR)

Using Formula

Settlement 15-Jul-96 Purchase Date

Maturity 15-Jul-21 Maturity Date
Rate 6.75%
Price 95.60
Redemption (Par) 100.00
Frequency 2.00
YTM 7.13%

After-Tax Cost of Debt

Tax Rate 38.00% Exhibit 1

Aftex-tax Cost of Debt 4.42%
Common Stock

Price 42.09 Exhibit 4

Current Dividend 0.48 Exhibit 4
Dividend Growth 5.50% Exhibit 4
Cost of Common Stock 6.70%

Weighted Average Cost of Capital

Using Current Market Value

Long Term Debt 435.90
Current Portion of Long Term Deb 5.40

Outstanding Market Price

Debt - -
Common Stock 273.30 42.09
ue Nike in Indonesia

Cash Flows
Total Cash Flow
Principal
(95.60) (95.60)
6.75
6.75
6.75
6.75
6.75
6.75
6.75
6.75
6.75
6.75
6.75
6.75
6.75
6.75
6.75
6.75
6.75
6.75
6.75
6.75
6.75
6.75
6.75
6.75
6.75
6.75
6.75
6.75
 6.75
6.75
6.75
6.75
6.75
6.75
6.75
6.75
6.75
6.75
6.75
6.75
6.75
6.75
6.75
6.75
6.75
6.75
6.75
6.75
6.75
100.00 106.75
7.07%
7.08%

Exhibit 4
Exhibit 4
Market Value Weight Cost Weighted Cost
441.30 0.04 4.42% 0.16%
11,503.20 0.96 6.70% 6.46%
11,944.50 1.00 WACC 6.62%
CAPM