Cyberproblem on Risk and Return
The tendency of a stock’s price to move up and down with the market is reflected in its beta coefficient. Therefore, beta is a measure of an investment's market risk, and is a key element of the CAPM.
In this exercise you will find betas using Yahoo!Finance, located at http://finance.yahoo.com. Access http://finance.yahoo.com web site, and request a stock quote for the desired company. Next, click on the “Company: Key Statistics” link found on the left side of the page. Then, scroll down and note the beta. If for any of the following four companies the beta is not available then use a company of your own choosing.
a. Identify the beta listed for a company called ELXSI, stock symbol ELXS. According to Yahoo!Finance, what is ELXI's beta?
b. Again from Yahoo!Finance obtain a report on MBNA Corporation, symbol KRB. What is the beta listed for KRB?
c. Obtain the beta for General Electric Co.
d. Look for the beta for Ford Motor Co.
e. If you made an equal dollar investment in each of the above-mentioned four stocks, what would be the beta of your portfolio?
f. Apply the Capital Asset Pricing Model (CAPM) Security Market Line to estimate the required return on General Electric Co. stock and compare the required return against the return over the last 52 weeks, found in the Yahoo!Finance under “Company: Key Statistics”.
Assumptions and Data: Note that you will need an estimate of the risk-free rate, rRF, and an estimate of the market risk premium. Assume a 7% market risk premium and get the current yield on 10-year Treasury securities from http://www.bloomberg.com. For this purpose, go to http://www.bloomberg.com then click on “Market Data” and then on “Rates and Bonds”.
g. Highlight the data which you have used to answer the above questions and attach them to your report.
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- Submitted On 25 Apr, 2015 02:36:44