13.1 Expected Return You want to find the
expected return for Honeywell using the CAPM. First you need the market risk
premium. Go to www.cnnfn.com, follow the
"Bonds &; Rates" link, and the "Latest Rates" link. Find
the current interest rate for three-month Treasury bills. Use the average large-company
stock return in Table 12.3 to calculate the market risk premium. Next, go to
finance.yahoo.com, enter the ticker symbol
HON for Honeywell, and follow the "Profile" link. In the Statistics
at a Glance section you will find the beta for Honeywell. What is the expected
return for Honeywell using CAPM? What assumptions have you made to arrive at
this number? 13.2 Portfolio Beta You have decided to invest
in an equally weighted portfolio consisting of American Express, Procter &
Gamble, Home Depot, and DuPont and need to find the beta of your portfolio.
Go-to finance.yahoo.com and
follow the "Global Symbol Lookup" link to find the ticker symbols
for each of these companies. Next, go back to finance.yahoo.com,
enter one of the ticker symbols and get a stock quote. Follow the "Profile"
link to find the beta for this company. You will then need to find the beta
for each of the companies. What is the beta for your portfolio? 13.3 Beta Which companies currently have the
highest and lowest betas? Go to www.amex.com
and follow the "Screening" link. Enter 0 as the maximum beta and enter
search. How many stocks currently have a beta less than 0? What is the lowest
beta? Go back to the stock screener and enter 3 as the minimum. How many stocks
have a beta above 3? What stock has the highest beta? 13.4 Security Market Line Go to finance.yahoo.com
and enter the ticker symbol IP for International Paper. Follow the "Profile"
link to get the beta for the company. Next, follow the "Research"
link to find the estimated price in 12 months according to market analysts.
Using the current share price and the mean target price, compute the expected
return for this stock. Don’t forget to include the expected dividend payments
over the next year. Now go to www.cnnfn.com,
follow the "Bonds &; Rates" link, the "Latest Rates"
link and find the current interest rate for three-month Treasury bills. Using
this information, calculate the expected return on the market using the reward-to-risk
ratio. Does this number make sense? Why or why not? |