CAPM Final Project

Olter, Inc. is starting its risk management program for the company and has asked for your help in determining critical risk measurements for the firm. The company has identified several factors in the market that they believe are critical for your tasks:

  • The risk-free rate is 6%
  • The required return on the average stock is 13%
  • Olter’s average return is 13%

Required:

  1. What is Olter’s beta coefficient?
  2. How does the beta coefficient influence the firm’s stock value?
  3. What is the required rate of return for Olter?
  4. In terms of risk, how does Olter compare to the average firm in the market?
  5. If Olter’s beta increased to 1.6, what would you expect to happen to the required rate of return and what does this mean for the firm?

Deliverable:

By Tuesday, April 1, 2014, submit the completed assignment to the W5: Assignment 2 Dropbox. Use a Microsoft Excel spreadsheet that illustrates your calculations. You may use the formulas embedded in Microsoft Excel and/or a financial calculator for these calculations.

 

Part Two:  Final Project 4: Portfolio Return and Risk; Report and Presentation

Part A: Portfolio Return and Risk

Required:

Select four stocks from finance.yahoo.com, google.finance.com, or moneycentral.msn.com. One should be a clothing manufacturer, one should be a retailer, one should be an automobile manufacturer, and one should be a restaurant or food producer.

  1. Obtain the closing price, the change in price from the previous day, and the beta.
  2. Calculate the return on holding the stock for a day (this should be the change in price over the closing price without the change).
  3. Calculate a portfolio return with weights of 0.25 for each stock.
  4. Calculate a weighted beta with weights of 0.25 for each stock.
  5. Summarize the implications of the portfolio return and risk with respect to what you learned about beta and the CAPM.

Deliverable:

By Tuesday, April 1, 2014, submit  a Microsoft Excel spreadsheet that illustrates your calculations. You may use the formulas embedded in Microsoft Excel and/or a financial calculator for these calculations.

 

 

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