Marvin Brown is a savvy investor who is always looking Ior a sound company to include in his

portIolio oI stocks and bonds. Being somewhat risk-averse, his main objective is to buy stock in
Iirms that are mature and well-established in their respective industries. WalMart is one oI the
stocks Marv is currently considering Ior inclusion in his portIolio.
WalMart has Iive major areas oI business: traditional WalMart discount stores, Supercenters,
Sam's Clubs, neighborhood markets, and international operations. Although WalMart was
established over 50 years ago, it continues to achieve growth through expansion.
In order to determine iI WalMart is a "good buy," Marv has to perIorm several analyses. First, he
must calculate the returns on WalMart's common stock over the past eight quarters as an
indicator oI how the stock might perIorm over the next year. He must then calculate the standard
deviation oI the stock as a proxy Ior its risk. To aid in his calculation, Marv has gathered the
Iollowing stock price and dividend data.
Quarterly Stock Prices and Dividend Payments
Date Dividend Amount Closing Stock Price
16-May-07 $ 0.22 $47.60
14-Mar-07 $ 0.22 $46.73
13-Dec-06 $ 0.168 $45.75
16-Aug-06 $ 0.168 $44.14
17-May-06 $ 0.168 $47.64
15-Mar-06 $ 0.168 $46.29
14-Dec-05 $ 0.15 $45.69
17-Aug-05 $ 0.15 $43.76
Questions
1. Calculate the returns Ior each oI the seven quarters.
2. Calculate the standard deviation oI the returns Irom question 1.
3. Assume that WalMart has a Beta oI 1.2, the risk-Iree rate oI interest (i.e. as proxied by
the return on a 3-month treasury bill) is 5.25, and the return on the market is 12.2
annually (as proxied by the expected return on the Standard & Poor's 500). Based on
CAPM, what is the required rate oI return on WalMart's stock?
4. Using your answer Irom question 3, iI WalMart had an expected return oI 14, would
Marv be well advised to purchase the stock? At what minimum expected rate oI return
would Marv be encouraged to buy the stock?
5. Marv has based his buy decision on quarterly data Irom the past two years. II the same
analysis was perIormed Iive years ago or Iive years Irom now, do you think Marv might
have come to a diIIerent conclusion? Discuss the eIIect that choosing this particular time
period might have on Marv's results.