PART III.

11. For your company’s common stock, collect Monday closing prices for the last calendar year (December 31, 2012 through December 30, 2013) and compute the weekly return (percentage price changes;2 decimals pls).

Do the same for the market index S&P500.

Prepare the tables including:

(a) weekly prices and values,

(b) weekly returns,

(c) risk-free-adjusted weekly returns (assuming a weekly risk-free rate of 0.06% in 2013)

of your stock and the market index.

 

12. Calculate the mean returns, the standard deviations of returns, and the CVs for your stock and the market index. Make conclusions.

 

13. Plot the risk-free-adjusted weekly returns on a graph and construct your stock’s Security Characteristic Line (SCL), showing the linear equation on your graph; describe your company’s systematic risk (beta) and abnormal return (alpha; “graphical alpha”).

 

14. Construct the CAPM formula,using the beta from your SCL. Compute your CAPM alpha (“analytical alpha”). Hint: your graphical and analytical alphas should be of the same value.

 

15. Draw the SML chart, and show your company stock on it. Make conclusions.

 

17. Find and interpret the correlation coefficient between your company stock’s returns andthe market index’ returns.

 

18. Using the Gordon’s model, estimate the value of your company’s common stock on December 31, 2013 (or the end of your financial year). Explain all the inputs to your calculations.