¶ … beta statistic is a coefficient of risk that investors use in order to determine whether or not an equity security is more or less risky than the market. This, in turn, is used to decide the ideal rate of return that the issue should maintain in order to warrant investment. If beta is one, then an issue is as risky as the market, and if it is zero, it is as risky as a risk-free rate that is usually represented in practiced by 30-year treasury bonds. The required rate of return on equity is always simply beta multiplied by the difference between the market's rate of return and the risk-free rate, added to the risk-free rate. In modern portfolio theory, beta is...
Beta statistics are determined for sectors and industries because portfolio managers often favor broader categories resulting from a 'top-down' approach to investment analysis. An alpha statistic is used to determine risk that may be eliminated through differentiation. For instance, the catastrophic effects of a flood are a particular danger, but one that may be eliminated through differentiation because floods are isolated incidents and do not affect the entire market at once (except in Bible stories.) However, if, for instance, interest rates shot up to 20% as they did in the early 1980's…
Finance My portfolio was constructed out of six stocks that are all market leaders. I was looking at mutual funds but could not find beta information so I went with all stocks. Each stock has a beta, which reflects the risk that company has, specifically how the stock moves in line with the market. This is not a causal relationship, just corollary -- the asset does not "react" to the market,
MSN Moneycentral (2011), the beta for Wal-Mart (WMT) is 0.33. This indicates that the company has a very low degree of correlation with the broader market, and is a less volatile investment than the broad market. According to Yahoo! Finance (2011), the rate of return on a one-year U.S. Treasury bond is 0.318%. It is assumed that the market risk premium is 7%. This assumption means that the market rate
WMT Equity The beta for Wal-Mart, according to MSN Moneycentral, is 0.29. According to Yahoo! Finance the yield to maturity on a Treasury bond that is due 15-Mar-12 is 0.296%. We will assume a market risk premium of 7%. With these figures, the cost of equity for Wal-Mart can be calculated using the capital asset pricing model (CAPM): Ra = RF + ? (Rm -- Rf) Ra = 0.296 + (.29)(7) Ra = 2.326% This
1 0.107 0.107 1.788005 4.37% 7.24% D 20 Lev 1.2925 0.120475 0.11038 1.653411 4.05% 7.22% D 50 Lev 1.87 0.1609 0.16045 -0.1731 -0.44% 7.05% 5. The only project that is unacceptable is Project D. At the 50% leverage level. This has a negative NPV. The other projects at each leverage level all have positive net present values. The following graph shows the NPVs for the different projects: 6. My objective in making this decision is to maximize firm value. The projects are mutually exclusive. I would use NPV as the main
Finance the beta of Spock's portfolio is (.5)(.7)+(.5)(1.1) = 0.9 The beta of Kirk's portfolio is (.9)(1) + (.1)(0) = 0.9 The risk of these two portfolios is the same. Both have the same beta, which implies that they are equally risky, even though their composition is quite different. Essentially, all securities should be priced at their fair market value, under the efficient market hypothesis. Investors should be completely ration. However, there are two
5% 2010 over 2009, indicating a major growth bounce back. What these figures indicate is that McDonalds may be priced at the high end of its range. The company is trading just off of its 52-week high and indeed is just off of its 10-year high. The market's growth assumptions are reasonable. China has not faced a strong economic downturn and is therefore going to continue to be a robust market
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