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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.

Survey of Accounting (Accounting I)
Survey of Accounting (Accounting I)
8th Edition
ISBN:9781305961883
Author:Carl Warren
Publisher:Carl Warren
Chapter15: Capital Investment Analysis
Section: Chapter Questions
Problem 15.1.1MBA
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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.
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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