The estimation of company betas is normally brushed over in many introductory finance texts. This often leads students to view beta as some magical number and not until later courses in finance that they realize that the choice of different returns, indices and intervals examined can deliver different beta estimates. This internet exercise takes you through the basic calculation of beta using Excel in order to help demystify a company beta. Along the way you will find how to download share price and index data of the internet which can then be manipulated in Excel. Finally, you will tie the concept of beta and the CAPM to stock valuation. The Yahoo Finance site has a wealth of financial information on companies and countries from all over the world. Once you arrive at this site you will find a box titled “Get Quotes” which you need to type in the stock symbol (if you are unsure of the stock symbol go to “Symbol Lookup”). To download financial data from the internet follow the detailed instructions in the text box below: Instructions for Downloading Stock Data
• In the Get Quotes box type in the stock symbol (for example Verizon is VZ and the S&P500 index is ^GSPC) and click the GO box.
• Click on Historical Data from the Quotes section under the more on VZ (for example) column. Click on the Time Period in the Set Date Range (then and enter the date range as instructed below and click Done button, Show: Historical Prices, set Frequency to Monthly, and click Apply.
• The first page of data should now be visible on the screen. Click the Download Data link. Save the data to a file, it will be saved as a CSV file.
• Open Excel and then open the file you saved.
• At this point you should have seven columns including the; Date, Open, High, Low and Closing share prices for that month, plus Volume and Adj Close data for each month. You can only need the Date, Open and Close columns for each stock or index.
• • To download dividend payments change the Show setting to Dividends Only, click Apply and export and save this info to a spreadsheet. You will need to do this for any of your stocks that have paid dividends over the time period below. Alternatively, you can just enter the dividends for each stock into your spreadsheet from the Yahoo Finance price table itself. The S&P 500 Index already includes dividends.
1. First download into Excel the APPLE (AAPL), Microsoft (MSFT), and S&P 500 Stock Index (^GSPC) monthly price data for the 5-year period from the Feb. 1, 2015 to Jan. 31, 2020 using the instructions outlined above. Using the Open and Close price data for each month (the date given is the first trading day for that month: i.e. the open and close for the month) to calculate the monthly percentage holding period returns for each stock and index where each month’s Open price is the beginning of the month price and each month’s Close price is the end of the month price. You can get rid of the other data provided for each month. In addition, you will need to include dividend payments for each stock to calculate monthly returns for the months that they made a dividend payment (the index doesn’t have dividend payments). For example, September’s monthly return is (Sept Close – Sept. Open + any Sept Div)/Sept Open. You should have 60 monthly returns for each stock and index from Feb. 1, 2015 to Jan. 31, 2020. Helpful Hint: I strongly urge creating a table of the appropriate opening & closing prices and dividends for each stock along with opening and closing prices for the S&P 500 Index on a separate worksheet and then do your calculations on this “fresh” worksheet.
2. What is the average monthly return for each stock and the S&P 500 index over the entire time period? Convert the average monthly return for each stock and index into an APR (annualized rate) by multiplying your monthly average for each stock by 12. Please convert your answers to percentages
3. Calculate the (population) standard deviation of monthly returns for each stock and the index using Excel.
4. Now calculate the beta for each stock using Excel’s Slope or Linest function to use estimate the slope of the linear regression line, which is beta. Use the S&P 500 index as the market portfolio in finding beta.
5. Now use the CAPM/SML Equation to estimate each stock’s required return. Use 10% as the required market return and the recent 1-year Treasury rate of 1% as the risk-free rate. Would you recommend buying APPLE and/or Microsoft if your APR average for each stock from #2 is your expected return? Explain your answer.
6. Construct a graph of the Security Market Line given by the parameters in #5. Point out the SML returns you calculated in #5 on your SML. Also, find and plot APPLE’s and Microsoft’s expected returns from the information given below gathered from their recent Yahoo Finance stock quotes against each stock’s beta on your SML graph. Would you recommend buying APPLE and/or Microsoft based on this information? Explain your answers. Note: you are evaluating each stock individually, not in comparison in one another.
|Estimated Price 1 year from now||332.91||194.19|
|Annual Expected Dividend (D1)||3.08||2.04|
Can I get help with question 5 and 6?Get Finance homework help today
Why Choose Us
At Myhomeworkwriters.com, we always aim at 100% customer satisfaction. As such, we never compromise o the quality of our homework services. Our homework helpers ensure that they craft each paper carefully to match the requirements of the instruction form.
Professional Academic Writers
With Myhomeworkwriters.com, every student is guaranteed high-quality, professionally written papers. We ensure that we hire individuals with high academic qualifications who can maintain our quality policy. These writers undergo further training to sharpen their writing skills, making them more competent in writing academic papers.
Our company maintains a fair pricing system for all academic writing services to ensure affordability. Our pricing system generates quotations based on the properties of individual papers.
My Homework Writers guarantees all students of swift delivery of papers. We understand that time is an essential factor in the academic world. Therefore, we ensure that we deliver the paper on or before the agreed date to give students ample time for reviewing.
Myhomeworkwriters.com maintains a zero-plagiarism policy in all papers. As such, My Homework Writers professional academic writers ensure that they use the students’ instructions to deliver plagiarism-free papers. We are very keen on avoiding any chance of similarities with previous papers.
Customer Support 24/7
Our customer support works around the clock to provide students with assistance or guidance at any time of the day. Students can always communicate with us through our live chat system or our email and receive instant responses. Feel free to contact us via the Chat window or support email: firstname.lastname@example.org.
Try it now!
How it works?
Follow these simple steps to get your paper done
Place your order
Fill in the order form and provide all details of your assignment.
Proceed with the payment
Choose the payment system that suits you most.
Receive the final file
Once your paper is ready, we will email it to you.
Our Homework Writing Services
My Homework Writers holds a reputation for being a platform that provides high-quality homework writing services. All you need to do is provide us with all the necessary requirements of the paper and wait for quality results.
At My Homework Writers, we have highly qualified academic gurus who will offer great assistance towards completing your essays. Our homework writing service providers are well-versed with all the aspects of developing high-quality and relevant essays.
Admission and Business Papers
With Myhomeworkwriters.com, we will help you secure a position at your desired institution. Our essay writing services include the crafting of admissions papers. We will still help you climb your career ladder by helping you write the official papers that will help you secure a job. We will guide you on how to write an outstanding portfolio or resume.
Editing and Proofreading
Myhomeworkwriters.com has a professional editorial team that will help you organize your paper, paraphrase it, and eliminate any possible mistakes. Also, we will help you check on plagiarism to ensure that your final paper posses quality and originality.
My Homework Writers harbors professional academic writers from diverse academic disciplines. As such, we can develop homework writing services in all academic areas. The simplicity or complexity of the paper does not affect the quality of homework writing services.