2. Estimating relative risk(5marks)

a. Run a regression of returns on your firm's stock against returns on a market index,preferably using monthly data and 5 years of observations. Use the regression to evaluate your company's performance on a risk adjusted basis during the period of the regression and its riskiness, relative to the market, and break down the risk into firm specific and market components. To run the regression, you will need to get data on past returns for your stock and for a market index.

b. Based on your company's business mix, estimate a "bottom up" beta for your company's operating businesses. You should be able to find the breakdown by business in your company's financial filings, though the details are richer in some than others. To get the beta for each business, you will need to find other publicly traded companies that operate primarily in that business, average their betas and correct for financial leverage and cash holdings.

c. Estimate the market value of debt outstanding in the company (see below), compute a market debt to equity ratio for the entire company, and use that ratio to compute a levered beta for the company. If you can allocate the debt across the different businesses, compute the debt to equity ratio and levered beta for each business. (If not, use the company's debt to equity ratio for all of the businesses).

d. Use the levered betas, in conjunction with therisk-freerate and equity risk premium, to compute costs of equity for each business and for the overall company.

the company is puma