Risk and Rates of Return
Question # 00055078
Posted By:
Updated on: 03/11/2015 06:40 AM Due on: 03/11/2015
| Case 84M | Student Version | 9/28/96 | |||||||
| Filmore Enterprise |  |
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| Risk and Rates of Return | |||||||||
| INSTRUCTIONS: This case begins with data on the state of the economy and returns on | |||||||||
| Treasury securities, 3 different stocks, and the S&P index (market). The model calculates | |||||||||
| the expected return, standard deviation, and coefficient of variation for each of the assets | |||||||||
| and for a 2-stock portfolio. The model allows you to change the mix of the 2-stock | |||||||||
| portfolio and then see the change in the portfolio's expected return and standard deviation. | |||||||||
| In addition, the model uses the spreadsheet regresson feature to determine the equation for | |||||||||
| each asset's characteristic line, hence each asset's beta coefficient. Note that if the input | |||||||||
| data are changed, the regression analysis must be rerun. Four different graphs can be | |||||||||
| viewed by clicking on the tabs at the bottom of the workbook. | |||||||||
| A list of graphs follows: | |||||||||
| PORTSIZE | Portfolio Size and Risk, Q5 | ||||||||
| CHARLINE | Characteristic Lines, Q7 | ||||||||
| SML | Security Market Line, Q8 | ||||||||
| SMLCHGS | Changes in SML, Q10 | ||||||||
| The following cells have been blanked out: | |||||||||
| I41:K45, D47:K47, E49:E50, D85:H89, C91, C228:C236, and E228:E236. | |||||||||
| |:: | |||||||||
| - | - | - | - | - | - | - | - | - | |
| INPUT AND MODEL-GENERATED DATA: | |||||||||
| Portfolio Mix | |||||||||
| ------------------ | - | ||||||||
| % CPC | 50.0% | % CPC | 40.0% | % MORLEY | 50.0% | ||||
| % MORLEY | 50.0% | % EAT | 60.0% | % EAT | 50.0% | ||||
| NASDAQ | Port: | ||||||||
| Economy | Prob. | T-Bills | T-Bonds | CPC | MORLEY | EAT | Index | CPC-MORELY | |
| ------- | ----- | --------- | -------- | ----- | ---- | ---- | ----- | --------- | |
| Recession | 0.10 | 4.5% | 10.0% | -18.00% | 18.00% | -13.00% | -13.00% | ||
| Below avg | 0.20 | 4.5% | 7.0% | -8.00% | 14.00% | -6.00% | -2.00% | ||
| Average | 0.40 | 4.5% | 5.0% | 11.00% | 6.00% | 10.00% | 11.00% | ||
| Above avg | 0.20 | 4.5% | 3.0% | 26.00% | -1.00% | 20.00% | 17.00% | ||
| Boom | 0.10 | 4.5% | 2.0% | 35.00% | -11.00% | 30.00% | 22.00% | ||
| ----- | --------- | --------- | --------- | --------- | --------- | --------- | --------- | ||
| Expected return | 4.50% | ||||||||
| Variance | 0.0 | 32.0 | 351.3 | 98.3 | 234.1 | 172.3 | 0.0 | ||
| Std deviation | 0.00% | 5.66% | 9.91% | 15.30% | 13.13% | 0.00% | |||
| Coef of var (CV) | 0.00 | #DIV/0! | #DIV/0! | #DIV/0! | #DIV/0! | #DIV/0! | |||
| Beta coefficient | 0.00 | -0.22 | 0.00 | -0.77 | 1.22 | 1.00 | |||
| SECURITY MARKET LINE: | |||||||||
| Risk-free Rate: | 0.00% | SML Equation: | |||||||
| Market Return: | 0.00% | k = kRF + (kM - kRF)b | |||||||
| Beta: | 1.00 | k = | 0.00% | + | 0.00% | b | |||
| SML Equation: | 0.0% | ||||||||
| |:: | |||||||||
| CHARACTERISTIC LINES: | |||||||||
| X | Y | ||||||||
| T-Bills | (Market) | (Bills) | Est. Y | ||||||
| Regression Output: | - | - | - | ||||||
| Constant | 0.05 | -13.0% | 4.5% | 4.5% | |||||
| Std Err of Y Est | 0.00 | -2.0% | 4.5% | 4.5% | |||||
| R Squared | 0.00 | 11.0% | 4.5% | 4.5% | |||||
| No. of Observations | 5 | 17.0% | 4.5% | 4.5% | |||||
| Degrees of Freedom | 3 | 22.0% | 4.5% | 4.5% | |||||
| --------- | |||||||||
| X Coefficient(s) | 0.00 | ||||||||
| Std Err of Coef. | |||||||||
| X | Y | ||||||||
| T-Bonds | (Market) | (Bonds) | Est. Y | ||||||
| Regression Output: | - | - | - | ||||||
| Constant | 0.07 | -13.0% | 10.0% | 9.9% | |||||
| Std Err of Y Est | 0.00 | -2.0% | 7.0% | 7.4% | |||||
| R Squared | 0.99 | 11.0% | 5.0% | 4.5% | |||||
| No. of Observations | 5 | 17.0% | 3.0% | 3.2% | |||||
| Degrees of Freedom | 3 | 22.0% | 2.0% | 2.1% | |||||
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Rating:
/5
Solution: Risk and Rates of Return