Scribd Logo
Upload

Welcome to Scribd!

  • 17 views

    Chapter 6: Beta Estimation and The Cost of Equity

    Uploaded by

    Mukul Kadyan
    This document contains 7 problems related to beta estimation and the cost of equity. Problem 1 calculates beta based on historical returns. Problem 2 calculates the opportunity cost of capital using a given beta, risk-free rate, and risk premium. Problem 3 again calculates beta based on variance and covariance. Problem 4 calculates correlation, variance, and beta from monthly return data for two assets. Problem 5 shows alphas and betas for three assets. Problem 6 demonstrates how leverage affects beta. Problem 7 calculates the return of a portfolio based on the betas, returns and weights of four assets.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Chapter 6: Beta Estimation and The Cost of Equity

    Uploaded by

    Mukul Kadyan
    17 views2 pages
    This document contains 7 problems related to beta estimation and the cost of equity. Problem 1 calculates beta based on historical returns. Problem 2 calculates the opportunity cost of capital using a given beta, risk-free rate, and risk premium. Problem 3 again calculates beta based on variance and covariance. Problem 4 calculates correlation, variance, and beta from monthly return data for two assets. Problem 5 shows alphas and betas for three assets. Problem 6 demonstrates how leverage affects beta. Problem 7 calculates the return of a portfolio based on the betas, returns and weights of four assets.

    Original Title

    CH-06

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    This document contains 7 problems related to beta estimation and the cost of equity. Problem 1 calculates beta based on historical returns. Problem 2 calculates the opportunity cost of capital using a given beta, risk-free rate, and risk premium. Problem 3 again calculates beta based on variance and covariance. Problem 4 calculates correlation, variance, and beta from monthly return data for two assets. Problem 5 shows alphas and betas for three assets. Problem 6 demonstrates how leverage affects beta. Problem 7 calculates the return of a portfolio based on the betas, returns and weights of four assets.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    17 views2 pages

    Chapter 6: Beta Estimation and The Cost of Equity

    Uploaded by

    Mukul Kadyan
    This document contains 7 problems related to beta estimation and the cost of equity. Problem 1 calculates beta based on historical returns. Problem 2 calculates the opportunity cost of capital using a given beta, risk-free rate, and risk premium. Problem 3 again calculates beta based on variance and covariance. Problem 4 calculates correlation, variance, and beta from monthly return data for two assets. Problem 5 shows alphas and betas for three assets. Problem 6 demonstrates how leverage affects beta. Problem 7 calculates the return of a portfolio based on the betas, returns and weights of four assets.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 2

    Chapter 6: Beta Estimation and the Cost of Equity

    Problem 1
    (rM - .0284) ×
    Sensex, rM Delite, rD (rD - .079)
    -0.1250 -0.0510 0.0199
    0.0170 0.0670 0.0001
    0.0720 0.0710 -0.0003
    0.1150 0.1890 0.0095
    0.0630 0.1190 0.0014
    Average 0.0284 0.079
    Stdev 0.0925 0.0878
    Variance 0.0086 0.0077
    Cov 0.0061
    Beta Covar/VarM 0.72

    Problem 2

    Beta 1.21
    Risk free rate 8.50%
    Risk premium 9.50%
    Opportunity cost of capital: 20%
    8.5% + 9.5% × 1.21
    Project’s expected return 20%
    The project’s expected return is just equal to the opportunity cost of capital. The firm may accept it.

    Problem 3

    Correlation – Market & excel 0.725


    Variance - Excel 0.006455
    Variance - Market 0.001589
    Standard deviation - Excel 0.080343
    Standard deviation - Market 0.039862
    Beta: 0.725 × 0.080343/0.039862 1.46

    Problem 4

    Months HLL Sensex HLL Sensex HHL r ×


    r r 2 2 Sensex r
    r r
    1 -1.2 -3.5 1.44 12.25 4.2
    2 -2.7 -5.1 7.29 26.01 13.77
    3 -8.6 -4.3 73.96 18.49 36.98
    4 -3 -7.5 9 56.25 22.5
    5 -0.3 -4.8 0.09 23.04 1.44
    6 -1.9 -1.9 3.61 3.61 3.61
    7 -0.5 -1.5 0.25 2.25 0.75
    8 -0.8 -4.6 0.64 21.16 3.68
    9 3.3 4.1 10.89 16.81 13.53
    10 1.3 0 1.69 0 0
    11 0.3 2 0.09 4 0.6
    12 -0.5 -0.2 0.25 0.04 0.1
    13 6 3.9 36 15.21 23.4
    14 -6 -10.1 36 102.01 60.6
    15 -2.5 -3.5 6.25 12.25 8.75
    Sum -17.1 -37 187.45 313.38 193.91
    Average -1.14 -2.47

    Correlation 0.79
    Cor2 0.62
    Std. Error 2.22
    Observations 15
    Alpha 0.55
    Beta 0.68
    Var HLL r 12
    Var Sensex r 15.87
    Systematic risk 7.4
    Unsystematic risk 4.59

    Problem 5

    A B C
    Alpha 1.53 -0.65 0.85
    Beta 0.89 1.18 1.29
    Correlation 0.78 0.83 0.65
    Correlation square 0.61 0.69 0.42
    Systematic risk 0.61 0.69 0.42
    Unsystematic risk 0.39 0.31 0.58

    Problem 6

    Beta (asset beta of an all-equity financed firm) 1.21


    Risk-free rate 6.50%
    Market premium 9.00%
    Debt ratio 30%
    Equity ratio 70%
    Equity beta (leveraged firm): 1.21/0.70 1.73
    Expected equity return: 6.5% + 9% × 1.73 22.1%

    Problem 7

    Risk-free rate 0.09


    Market return 0.16
    Risk premium 0.07
    Share A B C D
    Beta 0.8 1.25 1 0.6
    Return 0.1460 0.1775 0.1600 0.1320 Total
    Investment 100,000 100,000 75,000 125,000 400,000
    Weight 0.2500 0.2500 0.1875 0.3125 1.0000
    Portfolio return 0.0365 0.0444 0.0300 0.0413 0.1521

    You might also like

    pFad - Phonifier reborn

    Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

    Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


    Alternative Proxies:

    Alternative Proxy

    pFad Proxy

    pFad v3 Proxy

    pFad v4 Proxy