Tag Archives: Corporate Finance

Solution to Management Science Series #165: Estimating Betas: Real-world example #3 🧮(Walmart)

Estimating Betas: Real-world example #3 🧮

Calculate beta of the Walmart stock through regression analysis.

Time interval will be monthly and the time period to be observed will be last 5 years.

The proxy for the market portfolio will be S&P 500.

Solution to Management Science Series #164: Estimating Betas: Real-world example #2 🧮(P&G)

Estimating Betas: Real-world example #2 🧮

Calculate beta of the P&G stock!

Use the monthly returns for the last 5 years: i.e. 2019-2023.

S&P 500 will be the proxy for the market portfolio.

Lastly, regress P&G’s returns on the market returns and calculate beta that way for the monthly case!

Rely on publicly available data resources and compare your results with the values already calculated on these platforms! Explain the difference or the similarity!

Solution to Management Science Series #163: Estimating Betas: Real-world example 🧮

Estimating Betas: Real-world example 🧮

Calculate beta of the Visa stock!

Use the monthly returns for the last 5 years.
S&P 500 will be the proxy for the market portfolio.
Lastly, regress Visa’s returns on the market returns and calculate beta that way for the monthly case! Rely on publicly available data resources and compare your results with the values already calculated on these platforms!

Explain the difference or the similarity!

Create an additional model for which every input value is the same except for market portfolio being NASDAQ!

Solution to Management Science Series #162: Project Evaluation and Beta 🧮

Assume that Hyrule Electronics is an all-equity firm producing and marketing video game consoles and software. Hyrule has a beta of 1.35. The market risk premium is 7.2% and the risk-free rate is 3.5%.

There are three projects Hyrule is considering investment. Projects have the same beta as that of the firm. What should the discount rate be for these projects?

Also, each project requires an investment of $1,000,000 and lasts for a single year after the initial investment. Project A’s expected cash flows next year is $1,500,000, B’s $1,250,000, and C’s $1,050,000.

Calculate each project’s IRR and NPV!

Which projects should Hyrule invest considering that each project is independent? Plot the security market line (SML), label the regions within which you should accept or reject a project, also show each project on that plot!

Statistical modeling in corporate finance: Determining beta 🔮

Statistical modeling in corporate finance: Determining beta 🔮

As a statistical measure, beta estimation is prone to measurement error.

Which of the following inputs do affect beta estimates?

-Time period observed

-Time interval used

-Market portfolio against which the individual stock is benchmarked

-Whether close or adjusted close values are used

Solution to Management Science Series-3: Learn Finance💹

Learn Finance. 💹

At least the basics.

Whether you use it for your retirement, financial independence or investment plans, you are required to know the basics of finance. 💰

Up for a quick test ⬇️

-You plan to retire within 20 years from now.

-You need to cover first 5 years of your retirement through your own savings.

-You think that during these first 5 years of your retirement, your expenses will run $200,000 per year.

-You have found an investment vehicle that will help you earn 9% annually on your savings throughout the following decades.

Question:

How much money should you save each year on average, i.e. in terms of equal amounts per year, until your retirement so that you will solely rely on these savings without running out of money throughout the first 5 years of your retirement?

Management Science Series #155: Solution to the Introduction to Portfolio Theory: Part 19 Hard 🧠

A portfolio that combines the risk-free asset and the market portfolio has an expected return of 9% and a standard deviation of 13%.

The risk-free rate is 5% and the expected return on the market portfolio is 14%.

Assume that the CAPM holds in that market!

What expected return should a security earn if it has a 0.53 correlation with the market portfolio and a standard deviation of 61%?

Management Science Series #154: Solution to the Introduction to Portfolio Theory: Part 18 Medium 🧠

Introduction to Portfolio Theory: Part 18 Medium 🧠

Could you answer the following questions correctly?

-According to the CAPM, can a stock have a negative expected return?

-Why would you invest in a risky security with an expected return that is lower than the risk-free rate?

-Can a security have a low beta and a high standard deviation?

-What would you say about the expected return on a security with low beta and high SD?

Management Science Series #153: Solution to the Introduction to Portfolio Theory: Part 17 Medium 🧠

Introduction to Portfolio Theory: Part 17 Medium 🧠

Calculate the expected return on Walmart stock, using CAPM!

Rely on the publicly available information to calculate the necessary input values!

1-Y US Treasury bill will be the proxy for the risk-free asset.

The relevant market will be S&P 500!

Use the information for the last 3 years!