Corporate Finance Project

In this exercise you will need to download monthly historical data of SP500 index and stocks from Yahoo! Finance, located at http://finance.yahoo.com. To find a company’s historical trading information, enter the desired stock symbol and request a basic quote. Once you have the basic quote, click on Historical Data and youll see the trading prices. Choose 1Y for time period and monthly for frequency. Then click on Apply and the data are ready to download. Please go over the attached document for the full instructions and details.
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Project3: Portfolio Risk and Return (Individual work, Due on April. 16th)
The tendency of a stock’s price to move up and down with the market is reflected in its
beta coefficient. Therefore, beta is a measure of an investment’s market risk, and is a key
element of the CAPM.
In this exercise you will need to download monthly historical data of SP500 index and
stocks from Yahoo! Finance, located at http://finance.yahoo.com. To find a company’s
historical trading information, enter the desired stock symbol and request a basic quote.
Once you have the basic quote, click on Historical Data and youll see the trading
prices. Choose 1Y for time period and monthly for frequency. Then click on Apply
and the data are ready to download.
a. Identify the beta for a company called Dennys Corp., stock symbol DENN. Run
a regression using the close price of SP500 index and that of DENN. Please show
the regression line.
b. Again estimate beta of Amazon (AMZN), Caterpillar Inc. (CAT), and Waste
Management (WM). Be sure to show the regression lines. Which company (or
companies) has higher beta (greater than 1.0)? And which company (or
companies) has lower beta (less than 1.0)? Why?
c. If you made an equal dollar investment in each of the four stocks, Dennys,
Amazon, Caterpillar Inc., and Waste Management, what would be the beta of
your portfolio?
d. Apply the Capital Asset Pricing Model (CAPM) Security Market Line to estimate
the required return on Caterpillar Inc and compare the required return against the
return over the last 52 weeks, 52-Week Change, found in the Yahoos Finance
Key Statistics for Caterpillar.
Assumptions and Data: Note that you will need an estimate of the risk-free rate,
kRF, and the market risk premium. Assume a 7% market risk premium and get the
current yield on 10-year Treasury securities from http://www.bloomberg.com.
Select the “Fixed Income” link from Bloomberg’s navigation menu, then choose
US. Use the 10-year yield on Treasury securities as the risk-free rate.
…
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