QUESTION FOUR Performance Evaluation 1. Based on five years of monthly data, you derive the following information for the companies listed: Page 4 of 4 Company a (Intercept) Far Intel 0.22 12.10% 0.72 Ford 0.10 14.60 0.33 Anheuser Busch 0.17 7.60 0.55 Merck 0.05 10.20 0.60 S&P 500 0.00 5.50 1.0 a. Compute the beta coefficient for each stock. (10 marks) b. Assuming a risk-free rate of 8 percent and an expected return for the market portfolio of 15 percent, compute the expected (required) return for all the stocks and plot them on the SML (10 marks) c. Plot the following estimated returns for the next year on the SML and indicate which stocks are undervalued or overvalued. •Intel-20 percent Ford-15 percent Anheuser Busch-19 percent Merck-10 percent.
QUESTION FOUR Performance Evaluation 1. Based on five years of monthly data, you derive the following information for the companies listed: Page 4 of 4 Company a (Intercept) Far Intel 0.22 12.10% 0.72 Ford 0.10 14.60 0.33 Anheuser Busch 0.17 7.60 0.55 Merck 0.05 10.20 0.60 S&P 500 0.00 5.50 1.0 a. Compute the beta coefficient for each stock. (10 marks) b. Assuming a risk-free rate of 8 percent and an expected return for the market portfolio of 15 percent, compute the expected (required) return for all the stocks and plot them on the SML (10 marks) c. Plot the following estimated returns for the next year on the SML and indicate which stocks are undervalued or overvalued. •Intel-20 percent Ford-15 percent Anheuser Busch-19 percent Merck-10 percent.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:QUESTION FOUR
Performance Evaluation
1. Based on five years of monthly data, you derive the following information for the
companies listed:
Page 4 of 4
Company
a (Intercept)
Far
Intel
0.22
12.10%
0.72
Ford
0.10
14.60
0.33
Anheuser Busch
0.17
7.60
0.55
Merck
0.05
10.20
0.60
S&P 500
0.00
5.50
1.0
a. Compute the beta coefficient for each stock.
(10 marks)
b. Assuming a risk-free rate of 8 percent and an expected return for the market
portfolio of 15 percent, compute the expected (required) return for all the
stocks and plot them on the SML
(10 marks)
c. Plot the following estimated returns for the next year on the SML and indicate
which stocks are undervalued or overvalued.
•Intel-20 percent
Ford-15 percent
Anheuser Busch-19 percent
Merck-10 percent.
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