Reference no: EM132209215

FINANCIAL MANAGEMENT ASSIGNMENT -

You should upload the Excel file on Canvas. Show your Work (Show your Work =Complete each sheet step-by-step. Formulas should be visible when clicking on cell)

Remember you can double-check with direct formulas such as for VAR.P or STDEV.P or CORREL.

You will find the expected return of two stocks according to the Capital Asset Pricing Model (CAPM)

You will also find the value of these two stocks using two different methods: Dividend Discount Model (Gordon's Growth) and using P/E ratio

Your first stock will be WMT and the second stock will correspond to the last digit(s) of your PID. In other words, you will use the same set of stocks as in HW4.

I am providing the yearly stock prices, dividends, earnings per share and P/E ratios for 2014, 2015, 2016 in "Data" sheets

Again, assume Risk-Free rate is 2%, Market Risk Premium is 4% and Long Term Growth Rate is 2%

If your stock does not pay dividend, you will assume $1.00, $1.20 and $1.30

If your stock does not have available P/E Ratio data, you will assume 20, 22, 23

1. For each of the two stocks in your portfolio, calculate the following:

*Assume equal probability for each historical price observation, so E[R]=Average. Also assume no dividends, so each month's return (H.P.R.) is = (P1-P0)/P0

A. Expected Return (average of yearly returns, ***not CAPM) -> (μ)

B. Variance (σ^2)

C. Standard Deviation (σ)

D. Covariance of the Asset with the Market (Proxy: S&P500)

E. Beta

F. Market Risk Premium

G. Expected Return of Investors according to CAPM

2. For each stock, estimate the fundamental value (intrinsic value) according to:

H. Dividend Discount Model (Gordon's Growth)

I. Simple P/E Ratio

Attachment:- Assignment File.rar