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Case 01 Complete
Case 01 Complete
Case 01 Complete
On
Comprehensive/Spreadsheet Problem
Submitted To:
Faculty: Riyashad Ahmed (RyA)
Submitted By: Protiva Prova Das Ertiza Akando Shuvo Salma Jebin Md. Nawaz Sharif Tanvir Tanvir Ahmed Oni 1030224030 1030232030 1110122030 1110411030 1110412030
Bartman Industries and Reynolds Inc.s stock prices and dividends, along with the Winslow 5000 Index, are shown here for the period 2003-2011. The Winslow 5000 data are adjusted to include dividends. BARTMAN INDUSTRIES Year Stock Price Dividend REYNOLD INCORPORATED Stock Price Dividend MARKET INDEX Includes Dividends 2011 2010 2009 2008 2007 2006 $ 24.250 20.750 23.500 16.750 18.375 12.625 $ 2.250 2.100 2.000 1.950 1.860 1.800 $ 62.750 68.300 62.750 70.000 72.500 65.750 $ 4.000 3.950 3.850 3.650 3.400 3.000 $ 12,553.98 9,585.70 9,179.98 7,434.03 6,702.28 5,405.97
a.Use
and Market Index, and then calculate average returns over the five-year period. Answer: Annual Rates of Return =
Annual and average Returns of BARTMAN INDUSTRIES Year 2011 2010 2009 2008 2007 Average of Return Rate Calculation and Result = 27.71% = -2.77% = 52.24% = 1.77% = 60.28% = 27.85%
Annual and average Returns of REYNOLDS INCORPORATED Year 2011 2010 2009 2008 2007 Average of Return Rate Calculation and Result = -2.27% = 15.14% = -4.86% = 1.59% = 15.44% = 5.01%
Annual and average Returns of Market Index Year 2011 2010 2009 2008 2007 Average of Return Rate Calculation and Result = 30.97% = 4.42% = 23.49% = 10.92% = 23.98% = 18.76%
b. Calculate the standard deviations of the returns for Bartman, Reynolds, and the Winslow 5000. Answer: Standard Deviation =
c.
Bartman Industries, CV =
= 1.03
Reynolds Incorporated, CV =
= 1.93
Market Index, CV =
= 0.58
d) Construct a scatter diagram that shows Bartmans and Reynoldss return on the vertical axis and the market indexes returns on the horizontal axis. Answer:
Winslow 5000
e) Estimate Bartmans and Reynolds betas by running regressions of their returns against the Market Indexs returns. Are these betas consistent with your graph? Answer: Bartmans Regression analysis:
SUMMARY OUTPUT Regression Statistics Multiple R 0.751352 R Square 0.56453 Adjusted R Square 0.419373 Standard Error 21.76791 Observations 5 ANOVA df 1 3 4 SS 1842.821 1421.526 3264.347 Standard Error MS 1842.821 473.842 F 3.889105 Significance F 0.143156
Coefficients
t Stat
P-value
Lower 95%
Upper 95%
Lower 95.0%
Upper 95.0%
Intercept X Variable 1
-9.46003 1.989019
21.27497 1.008588
-0.44466 1.972081
0.686692 0.143156
RESIDUAL OUTPUT Observation Predicted Y 1 52.13987 2 -0.66857 3 37.26201 4 12.26005 5 38.23663 Residuals -24.4299 -2.10143 14.97799 -10.4901 22.04337
Observations 5 ANOVA df 1 3 4 SS 85.51291 288.0006 373.5135 Standard Error 9.576092 0.453976 Significance MS F F 85.51291 0.890758 0.4149 96.00019
t Stat
P-value
Lower Upper Lower 95% 95.0% 95.0% -17.4312 43.51965 17.4312 43.51965 -1.87322 1.016293 1.87322 1.016293
Upper 95%
RESIDUAL OUTPUT Standard Observation Predicted Y Residuals Residuals 1 -0.22524 -2.04476 -0.24098 2 11.15044 3.989558 0.470173 3 2.979657 -7.83966 -0.92391 4 8.365434 -6.77543 -0.79849 5 2.769711 12.67029 1.493206
Beta for Bartman industry and Beta for Reynolds Inc.s are consistent with the graph.
f) The risk-free return on long-term Treasury bond is 6.04%. Assume that the market risk premium is 5%.What is the expected return on the market? Now use the SML equation to calculate the two companies recquired return. Answer: Here, Risk free return is 6.04% Market risk premium is 5% So, expected return on the market = Market risk premium + Risk free return = (5+6.04) % =11.04% Required return of BARTMAN INDUSTRIES: Required return= risk free return+ (market return risk free return) * Beta = 6.04+ (11.04 6.04)* 1.989 = 6.04 + 9.945 = 15.99%
Required return of REYNOLDS INC.: Required return= risk free return+ (market return risk free return) * Beta = 6.04+ (11.04 6.04)* -0.43 = 6.04 2.15 = 3.89%
g) If you formed a portfolio that consisted of 50% Bartman and 50% Reynolds, what would be its beta and its required return? Answer: Calculating portfolios Beta: Company Bartman industries (50%) 1.99 Reynolds inc. (50%) -0.43
Portfolio required rate of return: Portfolio required return = Risk free return+ (market return risk free return) * Portfolio Beta = 6.04 + (11.04 6.04) * 0.78 = 9.94%
h) Suppose an investor wants to includes Bartman Industries stock in his or her portfolio. Stocks A, B, C are currently in the portfolio; and their betas
are 0.769, 0.985, and 1.423 respectively. Calculate the new portfolios required return if it consists of 25% of Bartman, 15% of stock A, 40% of Stock B, and 20% of Stock C.
Answer: Stock Bartman A B C Now, New portfolio Beta = * 25% 15% 40% 20% 1.989 0.769 0.985 1.423
Portfolio required return = Risk free return+ (market return risk free return) * Portfolio Beta = 6.04 + (11.04 6.04) * 1.29 =12.49%