Question
John Company has decided to pursue the option which includes debt financing as this structure is in alignment with the general structure of the firm's
John Company has decided to pursue the option which includes debt financing as this structure is in alignment with the general structure of the firm's other investments.
1) The equity beta for John Company is closest to:
| BETA = | |
| Rm, monthly | |
2) The return on the market, Rm on an annual basis, is closest to: (HINT: Use the returns on the S&P 500 as a proxy for the market. Compute the simple average of the S&P 500 monthly return series. Convert the average of the monthly returns to an annual rate. Use the EAR formula for determining Rm on an annual basis.)
| Rm, EAR = | |
3) Explain John Company's beta results as it relates to the market?
| Monthly Returns | ||
| Date | S&P 500 | John Company |
| January | 2.50% | 5.21% |
| February | -2.00% | -4.00% |
| March | 3.50% | 5.00% |
| April | 2.36% | 4.56% |
| May | 2.57% | 5.68% |
| June | -5.00% | -6.00% |
| July | -2.00% | -4.00% |
| Augusut | 3.25% | 5.80% |
| September | 2.50% | 4.56% |
| October | 2.36% | 3.54% |
| November | -2.00% | -4.50% |
| December | 0.10% | -0.90% |
| January | -1.00% | -8.00% |
| February | -1.60% | -4.00% |
| March | -6.78% | -9.00% |
| April | 4.80% | 7.00% |
| May | 3.50% | 5.60% |
| June | -1.00% | -3.00% |
| July | -5.00% | -8.00% |
| Augusut | 2.50% | 4.56% |
| September | -3.00% | -9.00% |
| October | -1.59% | -3.00% |
| November | -4.00% | -10.00% |
| December | 4.58% | 4.89% |
| January | -12.50% | -15.00% |
| February | -25.00% | -32.50% |
| March | 9.54% | 11.56% |
| April | 8.80% | 9.87% |
| May | 6.54% | 8.99% |
| June | 0.40% | 1.00% |
| July | 9.84% | 12.58% |
| Augusut | 4.58% | 6.58% |
| September | 5.68% | 4.89% |
| October | -1.26% | -3.00% |
| November | 7.54% | 8.00% |
| December | 5.68% | 8.90% |
| January | -5.00% | -6.00% |
| February | 6.58% | 5.68% |
| March | 6.54% | 8.00% |
| April | 2.50% | 4.56% |
| May | -9.00% | -15.00% |
| June | -5.47% | 6.00% |
| July | 1.45% | 25.80% |
| Augusut | -7.00% | -15.00% |
| September | 9.58% | 15.80% |
| October | 5.87% | 6.87% |
| November | 5.68% | 8.00% |
| December | 6.00% | 8.97% |
| January | 2.40% | 4.56% |
| February | 3.20% | 5.80% |
| March | 0.50% | 2.00% |
| April | 2.50% | 3.54% |
| May | -0.55% | -1.00% |
| June | -0.26% | 0.50% |
| July | -3.54% | -5.60% |
| Augusut | -5.00% | -7.00% |
| September | -7.00% | -8.00% |
| October | 12.35% | 13.50% |
| November | -3.34% | -4.56% |
| December | 2.55% | 3.58% |
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International Finance For Dummies
Authors: Ayse Evrensel
1st Edition
111852389X, 978-1118523896
