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

Methods of costing, METHODS OF COSTING : 1. Job costing :  Job costing ...

METHODS OF COSTING : 1. Job costing :  Job costing is the essential costing technique appropriate to those industries somewhere the work consist of separate contracts, or batch

Disadvantages of using standard costs, Purposes of standard cost accounting...

Purposes of standard cost accounting connection - suppose you were a management consultant and the client asked you the advantages and disadvantages of using standard costs and cos

Fixed overhead variance (fov), F ixed Overhead Variance (FOV) Fixed...

F ixed Overhead Variance (FOV) Fixed overhead variance has been described by ICMA, London, as 'the variation between the standard cost of fixed overhead absorbed in the pro

Determine growth rate, (a)  The value of a share of Rio National Equity on...

(a)  The value of a share of Rio National Equity on 31 December 2002, using the Gordon growth model and the capital asset pricing model, can be determined as follows. Required

Statement of changes in working capital, A statement of changes in working ...

A statement of changes in working capital assists us in locating where such changes took place. In the first example we try to demonstrate the increase or decrease in particular it

Typical causes of labour variances, Typical Causes of Labour Varian...

Typical Causes of Labour Variances Labour Rate Variances a) Higher rates being paid than planned because of wage raise awards. b) Lower or Higher grade of work

Calculate the variable cost, Workmen shoes accumulated the following produc...

Workmen shoes accumulated the following production and cost data for the past 5 months. i)  Using the high/low method calculate the variable cost per unit and the fixed cos

Comparison between absorption and marginal costing, Comparison between Abso...

Comparison between Absorption and Marginal Costing Marginal Costing like a cost accounting system is considerably different from absorption costing. It is an optionally metho

Calculate the annual profit from the farm , Xander Harris is considering wh...

Xander Harris is considering whether to buy a corn and soybean farm in Iowa. The farm will cost $800,000, and Xander will be able to pay this from profits his recently deceased mot

How long does it acquire to implement fca?, It takes about two to three yea...

It takes about two to three years to fully execute FCA and get all employees comfortable with it. Even then, the process will still develop. In Greensboro, North Carolina, it took

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