Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

In the Capital Asset Pricing Model (CAPM) discussion, beta is identified as the correct measure of risk for diversified shareholders. Recall that beta measures the

image text in transcribedimage text in transcribedimage text in transcribed

In the Capital Asset Pricing Model (CAPM) discussion, beta is identified as the correct measure of risk for diversified shareholders. Recall that beta measures the extent to which the returns of a given stock move with the stock market. When using the CAPM to estimate required returns, we would ideally like to know how the stock will move with the market in the future, but because we don't have a crystal ball we generally use historical data to estimate this relationship. As noted in the chapter, beta can be estimated by regressing the individual stocks returns against the returns of the overall market. As an alternative to running our own regressions, we can instead rely on reported betas from a variety of sources. These published sources make it easy to obtain beta estimates for most large publicly traded corporations. However, a word of caution is in order. Beta estimates can often be quite sensitive to the time period in which the data are estimated, the market index used, and the frequency of the data used. Therefore, it is not uncommon to find a wide range of beta estimates among the various published sources. 1. Find a chart for Apple (AAPL) that summarizes how the stock has done relative to the S&P 500 over the past years. Has the stock outperformed or underperformed the overall market during the past year? The past 5 years? 2. What is the firm's beta according to Yahoo Finance? Is it possible that you will find different beta from other financial websites? 3. Assume that the risk-free rate is 3% and that the market risk premium is 6%. What is the required return on the company's stock? (using the beta estimation from Yahoo Finance) 4. Repeat the same exercise for Procter and Gamble (PG). Do the reported betas confirm your earlier intuition? In general, do you find that the higher-beta stocks tend to do better in up markets and worse in down markets? Explain. Apple Inc. (AAPL) NasdaqGs - NasdaqGs Real Time Price. Currency in USD Add to watchlist 29 Visitors trend 2W T 10W 1 9M 1 149.32 +0.68 (+0.46%) 149.38 +0.06 (+0.04%) ) At close: 4:00PM EDT After hours: 07:59PM EDT Summary Company Outlook Y+ Chart Conversations Statistics Historical Data Profile Financials Analysis Options H Previous Close 148.64 Market Cap 2.468T 1D 5D 1M 6M YTD 1Y 5Y Max K* Full screen 180.00 Open 149.33 Beta (5Y Monthly) 1.22 149.32 Bid 149.34 x 1400 PE Ratio (TTM) 29.23 120.00 Ask 149.41 x 1000 EPS (TTM) 5.11 60.00 Day's Range 149.01 - 150.84 Earnings Date Oct 28, 2021 0.00 52 Week Range 107.32 - 157.26 Forward Dividend & Yield 0.88 (0.59%) Volume 60,893,395 Ex-Dividend Date Aug 06, 2021 Nov 1, 16 May 1, 19 Trade prices are not sourced from all markets Avg. Volume 75,273,220 1y Target Est 168.89 ir blue Dolatod Docoarch The Procter & Gamble Company (PG) NYSE - NYSE Delayed Price. Currency in USD Add to watchlist 29 Visitors trend 2w1 10W 1 9M 1 142.85 +2.00 (+1.42%) 142.85 0.00 (0.00%) At close: 4:02PM EDT After hours: 07:48PM EDT Summary Company Outlook y+ Chart Conversations Statistics Historical Data Profile Financials Analysis Options Previous Close 140.85 Market Cap 345.69B 1D 5D 1M 6M YTD 1Y 5Y Max km Full screen 160.00 Open 141.62 Beta (5Y Monthly) 0.42 142.85 Bid 142.96 x 800 PE Ratio (TTM) 26.11 126.67 Ask 143.40 x 1200 EPS (TTM) 5.47 93.33 Day's Range 141.24 - 143.18 Earnings Date Jan 18, 2022- Jan 24, 2022 60.00 52 Week Range 121.54 - 147.23 Forward Dividend & Yield 3.48 (2.47%) Volume 6,234,353 Ex-Dividend Date Oct 21, 2021 Nov 1, 16 May 1, 19 Trade prices are not sourced from all markets Avg. Volume 6,545,070 1y Target Est 152.79

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Corporate Treasury And Cash Management

Authors: Robert Cooper

1st Edition

1349512699, 9781349512690

More Books

Students also viewed these Finance questions

Question

What are the purposes of promotion ?

Answered: 1 week ago

Question

Describe global employee and labor relations practices.

Answered: 1 week ago