This action might not be possible to undo. Are you sure you want to continue?

**Ch 06 P14 Build a Model
**

a. Use the data given to calculate annual returns for Bartman, Reynolds, and the Market Index, and then calculate average returns over the five-year period. (Hint: Remember, returns are calculated by subtracting the beginning price from the ending price to get the capital gain or loss, adding the dividend to the capital gain or loss, and dividing the result by the beginning price. Assume that dividends are already included in the index. Also, you cannot calculate the rate of return for 2005 because you do not have 2004 data.) Data as given in the problem are shown below: Bartman Industries Year Stock Price Dividend 2010 $17.250 $1.150 2009 14.750 1.060 2008 16.500 1.000 2007 10.750 0.950 2006 11.375 0.900 2005 7.625 0.850

Reynolds Incorporated Stock Price $48.750 52.300 48.750 57.250 60.000 55.750

Market Index Dividend Includes Divs. $3.000 11,663.98 2.900 8,785.70 2.750 8,679.98 2.500 6,434.03 2.250 5,602.28 2.000 4,705.97

We now calculate the rates of return for the two companies and the index: Bartman 2010 2009 2008 2007 2006 Average Note: To get the average, you could get the column sum and divide by 5, but you could also use the function wizard, fx. Click fx, then statistical, then Average, and then use the mouse to select the proper range. Do this for Bartman and then copy the cell for the other items. b. Calculate the standard deviation of the returns for Bartman, Reynolds, and the Market Index. (Hint: Use the sample standard deviation formula given in the chapter, which corresponds to the STDEV function in Excel.) Use the function wizard to calculate the standard deviations. Bartman Standard deviation of returns Reynolds Index Reynolds Index

c. Now calculate the coefficients of variation Bartman, Reynolds, and the Market Index.

Bartman Coefficient of Variation

Reynolds

Index

. (Hint: use Excel’s SLOPE function.0% Reynolds 0.0% 0. e.0% 0. That gave us the data points.0% To make the graph.0% 0.) Are these betas consistent with your graph? Bartman's beta = Reynolds' beta = f.0% 0. then clicked the chart wizard. we first selected the range with the returns and the column heads.d. The risk-free rate on long-term Treasury bonds is 6. Construct a scatter diagram graph that shows Bartman’s and Reynolds’ returns on the vertical axis and the Market Index’s returns on the horizontal axis. It is easiest to make scatter diagrams with a data set that has the X-axis variable in the left column. Assume that the market risk premium is 5%. Year 2010 2009 2008 2007 2006 Index 0.0% 0. so we reformat the returns data calculated above and show it just below.0% Bartman 0. We then used the drawing toolbar to make free-hand ("by eye") regression lines.04%.0% 0. and changed the lines color and weights to match the dots. Estimate Bartman’s and Reynolds’s betas as the slopes of regression lines with stock returns on the vertical axis (y-axis) and market return on the horizontal axis (x-axis).0% 0.0% 0.0% 0. What is the expected return on the market? Now use the SML equation to calculate the two companies' required returns.0% 0.0% 0. then choose the scatter diagram without connected lines.0% 0.

Calculate the new portfolio’s required return if it consists of 25% of Bartman.423. 15% of Stock A.000% = = Reynolds: Required return = = g. and 20% of Stock C. what would be its beta and its required return? The beta of a portfolio is simply a weighted average of the betas of the stocks in the portfolio. so this portfolio's beta would be: Portfolio beta = h. and 1. respectively. If you formed a portfolio that consisted of 50% Bartman stock and 50% Reynolds stock.769.985 1. and their betas are 0.Market risk premium (RPM) = Risk-free rate = Expected return on market = = = Required return Bartman: Required return 5.040% Risk-free rate 6. and C are currently in the portfolio.040% = + + Market risk premium 5. Beta Bartman Stock A Stock B Stock C Portfolio Beta = Required return on portfolio: = = = Risk-free rate + Market Risk Premium * * Beta 0. Stocks A. 40% of Stock B.040% 11.000% 6. B. 0.423 Portfolio Weight 25% 15% 40% 20% 100% . Suppose an investor wants to include Bartman Industries’ stock in his or her portfolio.769 0.985.

.

What is the expected .

RIsk and return .xls

RIsk and return .xls

- Chapter 5 Model
- Ch03 P15 Build a Model
- Copy of FM11 Ch 07 P20 Build a Model
- Solution to Ch02 P14 Build a Model.xls
- Chapter 6_Build a Model Spreadsheet
- Solution to Ch12 P10 Build a Model
- Chapter 5_Build a Model Spreadsheet
- Ch02 P14 Build a Model
- Chapter 11
- Ch09 P18 Build a ModelBAM
- Ch07 P20 Build a Model(6)
- Ch12 P10 Build a Model Solution
- Ch11 P11 Build a Model
- 60488561 Solutions Ch04 P35 Build a Model
- Doleh, Sufian Ch_10 P23 Build a Model
- Chapter 13_Build a Model Spreadsheet
- Ch04 P35 Build a Model
- Ch11 P18 Build a Model (2)
- Solution to Ch02 P15 Build a Model (2)
- TB_Chapter05
- Penman 5ed Chap007
- Fin534 Quiz 1
- Chapter 6 MC Questions Soln.[1]
- 36843462-Chapter-12
- Untitled
- tb08
- 87414416 Victoria Chemicals
- bondebi
- Case 22 Victoria Chemicals a DONE
- Ch 06 P14 Build a Model

Are you sure?

This action might not be possible to undo. Are you sure you want to continue?

We've moved you to where you read on your other device.

Get the full title to continue

Get the full title to continue reading from where you left off, or restart the preview.

scribd