Already have an account? Get multiple benefits of using own account!
Login in your account..!
Remember me
Don't have an account? Create your account in less than a minutes,
Forgot password? how can I recover my password now!
Enter right registered email to receive password!
In this exercise you will familiarize yourself with index models, beta and CAPM estimation. Download the spreadsheet data_question3.xlsx from Sakai and use the data contained therein to answer Question 3. Spreadsheet data_question3.xlsx contains monthly stock returns for AT&T, Ford, Google and Exxon Mobile. Additionally, it contains monthly returns on Treasury securities and a broad market index. Be careful to calculate monthly excess returns over Treasuries as this is what you will need for estimating single index models.
a) In class we have discussed how index models can be used to separate firm-specific risk and market risk inherent in a firm's expected returns. What is the analytical formula to separate a security's risk into market risk and firm specific risk? b) Using excess returns over Treasuries, estimate the beta coefficients for AT&T, Ford, Google and Exxon Mobile without running a regression model. Additionally, using your result from part (a) estimate the standard deviation for each firm's expected return and estimate each firm's market risk component and firm-specific risk component. (Again use excess returns over Treasuries) Use the Excel functions STDEV.S and COVARIANCE.S for this exercise. Tabulate your results in the write-up as follows:
c) Describe and interpret your results in the single-index model sense. i.e. how each stock moves with the overall market and which stock is the riskiest for a diversified investor? How does beta relate to the market risk component and how does it relate to the firm specific component? d) Suppose you want to construct a portfolio consisting of AT&T, Ford, Google and Exxon that exhibits minimal movement with the overall market, i.e. = 0. Using Microsoft Excel Solver calculate the weights such that is minimized under the constraint
β = 0. (Use excess returns over Treasuries for your calculations). Break up into market risk and firm-specific risk. Would you have eliminated all risk by only holding this portfolio of stocks?
1. Prepare a cash flow forecast for the proposal to launch SafeCus in 2010 for a three-year period from 1 January 2010 using the data in the body of the Case Study and discount at
Morrow Company applies overhead based on direct labor hours. At the beginning of the year, Morrow estimates overhead to be $620,000, machine hours to be 180,000, and direct labor h
A company is evaluating the following lease or buy option. A four year lease with annual payments of $25,000 payable at the beginning of the year. The tax shield is available a
Purpose of Cost Estimation In estimating it assists the future expenditure as cost prediction like the expenditure will depend upon the cost of the respective activities a)
Clopack Company manufactures one product that goes through one processing department called Mixing. All raw materials are introduced at the start of work in the Mixing Department.
Pauline's Pastry Shop decides to remodel its offices this year. As part of the remodeling, Pauline's trades furniture with a cost of $12,000 that had been expensed in the year of p
Accounts Payable or sundry creditors are generally unsecured debts owed through the firm. These are also considered to as payables on open accounts. They may not be evidenced throu
1) The Svelte Jeans Company produces two different types of jeans. One is called the "Simple Life" and the other is called the "Fancy Life". The company sales budget estimates that
The following are three independent situations where the reporting entity for which financial statements are being prepared are underlined. Every company has a December 31, 2012 ye
Year Ending April 2009, 2009 April 30, 2008 Net Sales $10,148,082 $10,070,778 Accs Receivable 1,171,797 1,161,481 Assume that the accounts receivable (in thousands) were $996,852 a
Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!
whatsapp: +1-415-670-9521
Phone: +1-415-670-9521
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd