Answer to #4 please

Instructions:

Answer each of the questions listed below for the companies listed below. Use the most current information (where applicable). Ticker symbols are reported in brackets.

• 3M (MMM)
• American Airlines Group (AAL)
• Microsoft (MSFT)
• Biogen (BIIB)
• Gilead Sciences (GILD)
• United Airlines Holdings (UAL)
• Amazon (AMZN)

Cite all sources of information used for your analysis.

Appendix: Instructions on Data:

Begin by downloading historical prices for your stocks into Excel from Yahoo! finance. 12-31-18 to 2-10-20 Make sure that you request the same set of dates for your securities. You will need the column of data in the Yahoo output labeled as the adjusted close,which accounts for dividends and stock splits. Once you download the historical prices into Excel, compute the weekly returns for each security.

Return= (Adjusted Price₂ Adjusted Price₁) / Adjusted Price₁

To calculate beta, you need to run the following regression model:

R_i= + *R_m

Where R_i= the return on your stock

= the regression intercept (alpha)

= beta

R_m= the return on the market proxy (S&P 500)

This looks complicated, but it is actually a very simple procedure to do in Excel. Please see Regression using Excel.pdffor instructions on how to run regressions in Excel.

Portfolio beta is computed as the weighted average of constituents betas. Use market capitalization at the end of your sample period as the appropriate weights.

Sustainable growth, g = ROE (1- Payout ratio). Refer to the Powerpoint on Growth Rate for an example of where you can collect the relevant details you need to compute g. If you can identify relevant input to compute sustainable growth rate, then use the average dividend growth over the relevant years as your sustainable growth rate.

1. Estimate the Equity Beta.

Estimate each firms equity beta from the historical data compiled in Table 1 of Interactive Assignment 1.

1. Which stock index do you choose to use as the market proxy?
2. What is the beta estimate for each stock you are following? Include the Excel regression output for each of your beta estimates.
3. Assume the stocks you follow make up your portfolio. Compute the beta of your portfolio.

2. Estimate the Risk-Free Rate.

Find the current yield on a U.S. Treasury instrument that you feel represents the risk-free asset for a long-horizon project analysis.

1. Which government bond do you choose to use? Why do you choose this security?
2. What is the risk-free rate? How do you get this number?

3. Estimate the Market Risk Premium.

Estimate the market risk premium using at least 30 years data.

1. Specify very clearly the time period, the return interval, the risk-free rate and the market proxy you use.
2. When calculating mean return, do you use arithmetic mean or geometric mean? Why?
3. What is the mean market return at your data frequency (e.g., what is the mean weekly return if you use weekly data)? What is the annualized mean market return? What is the mean risk-free rate? What is your estimate of the market risk premium?

4. Estimate the Cost of Equity Using CAPM.

1. Compute each companys cost of equity using the CAPM.

5. Equity Valuation

1. Collect the annualdividend history of each company for the last 5 years (1/12015 to 31/12/2019). As you may have observed from Interactive Assignment 1, the dividend history is included in price history. To get the annual dividend, sum up the dividends for each year.
2. What is the terminal value of each stock at 31/12/2019?
3. Estimate the price on 31/12/2019.
4. Is this price fair? (hint: look up the appropriate price on the first trading day of 2020)