Calculate monthly excess returns, Cost Accounting

Assignment Help:

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?


Related Discussions:- Calculate monthly excess returns

Cost accountant and cost analysis, Cost Accountant and Cost Analysis ...

Cost Accountant and Cost Analysis Cost Accountant Is a member of chief accounting officers department? And he is responsible for collecting product costs and preparing ex

Determine inventory costs, Determine Inventory Costs Mary Cosmetics sells s...

Determine Inventory Costs Mary Cosmetics sells specialty lipstick for a retail price of $12.25 each. Mary purchases each tube for $5.00 and pays the following additional amounts: $

Functional classification of costs, Functional Classification of Costs ...

Functional Classification of Costs Beneath this classification, costs are classified according to the function they execute in an organization.  Costs can functionally be clas

How much will alan save or lose, Hale Company makes sets of wrenches. They ...

Hale Company makes sets of wrenches. They are trying to decide whether to continue to make the case the wrenches are sold in, or to outsource it to another company. The direct mate

Calculate the inventory turnover ratio, The following information is availa...

The following information is available for the automotive division of Ford Motor Company for 2009.  The company uses the LIFO inventory method.

Standard costs establish the minimum desirable costs, Standard Costs Establ...

Standard Costs Establish the Minimum Desirable Costs When actual costs incurred exceed or else are below the standard costs, we after that investigate the variances along with

Mini Report about Brand Image, Write a mini report in which you "Critically...

Write a mini report in which you "Critically Describe, Aanlyse and Reflect on the Brand Image Extension.  This task must include evidence of collection primary data on the same

Process costing, what is accounting treatment for material losses due to ab...

what is accounting treatment for material losses due to abnormal reasons

Difference between balance sheet and income statement, (i) Describe the di...

(i) Describe the difference between the balance sheet and the income statement in financial statements of companies. (ii) Give two examples of intangible assets and two exampl

The sales value basis., The following data relate to three joint products: ...

The following data relate to three joint products:                                                                               A                 B                     C

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

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!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd