Finance Chapter 6 Assignment Problems

Chapter 6 AssignmentCalculate r hat, sigma square, sigma, and CV from the following information.Demand Probability of Demand Occurring Rate of Return if demand occursPoor .1 -80% Below Average .2 -10%Average .4 10%Above average .2 35%Excellent .1 50%Use the following data from ABC and XYZ to calculate annual returns for each company and the market index. Then figure out the average returns for each. You do this by ((New stock price – Old stock price + dividend) / Old stock price)). ABC XYZYear Stock Price Dividend Stock Price Dividend Market Index (includes dividend)2012 18.00 1.10 38.00 5.50 11,521.592011 20.00 1.00 45.00 5.00 9,000.002010 15.00 .90 60.00 4.50 8,562.482009 9.00 .80 55.00 4.00 7,705.252008 12.00 .70 70.00 3.50 7,500.592007 5.00 .60 40.00 3.00 6,380.48Now calculate the rates of return for the two companies and the index: ABC XYZ Market Index2012 2011 2010 2009 2008 Now calculate the standard deviation of returns for ABC, XYZ, and the Market Index. Use information from part f.ABC XYZ Market IndexStd. Dev. Calculate the coefficients of variation of ABC, XYZ, and the Market Index. Use information from part f and g.ABC XYZ Market IndexCV Use the information that you calculated in part F to run a regression to estimate ABC’s and XYZ’s beta. Use the tool kit as a guide for running regressions. Stock returns are the y-axis and the market return is the x-axis.ABC beta isXYZ beta isThe risk free rate on LT treasury bonds is 1.5%. Assume the market risk premium is 4%. Use the CAPM to calculate the two companies’ required returns. rs = risk free rate + Beta *Market Risk Premium. Betas are listed in part I.Required return for ABC =Required return for XYZ =What is the portfolio beta that consists of 50% of both stocks (ABC and XYZ)? Use part I for information.Portfolio Beta =

 

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