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beta - RISK RETURN ESTIMATING USING BETA INPUTS Current...

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RISK RETURN ESTIMATING & USING BETA Adapted from spreadsheets provided by Aswath Damodaran INPUTS REGRESSION STATISTICS AND RISK PARAMETERS Current riskfree rate = 6.37% RISK AND PERFORMANCE MEASURES USING BETA Number of periods of data= 60 Slope (Beta)= 2.05 In estimating expected returns: Risk premium for stocks= 8.5% Intercept (Alpha) = -1.31% Riskfree Rate = 6.37% Riskfree rate during period = 6.0% Rf(1- Beta) = -0.51% Historical return premium= 8.50% Current stock price= $35.00 Intercept-Rf(1-Beta)= -0.80% Expected return= 23.78% Current Annual DPS = $0.00 VARIANCE STATISTICS In forecasting prices: MODEL Variance of the stock= 2.07% Current price= $35.00 Stk ret = Rf + B(Rm-Rf) Variance of the market = 0.26% Annualized DPS= $0.00 = Rf(1-B) + BRm Systematic variance= 1.08% Predicted prices: Beta=Cov(Rs,Rm)/Var(Rm) Unsystematic variance= 0.99% - One year from now $43.32 Intercept=Rs-BetaRm R squared = 52.29% - Two years from now $53.62 Perform. = Intercept - Rf(1-B) - Three years from now $66.37 Expected Return = Rf + Beta(Rm-Rf) - Five years from now $101.69 Future price = Current(1+Exp ret - Div rate) Example: Intel stock vs S&P 500
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RISK RETURN Index DPS(Stock) Split Factor Index Level Return (Mkt) (R(jt)-Rj)^2 1 1 $30.75 1 179.63 2 1 $28.00 1 181.19 -8.94% 0.87% 0.01 0 3 1 $27.75 $0.00 1 180.66 -0.89% -0.29% 0 0 4 1 $27.50 1 179.83 -0.90% -0.46% 0 0 5 1 $26.38 1 189.55 -4.07% 5.41% 0 0 6 1 $26.00 $0.00 1 191.85 -1.44% 1.21% 0 0 7 1 $28.25 1 190.92 8.65% -0.48% 0.01 0 8 1 $26.00 1 188.63 -7.96% -1.20% 0.01 0 9 1 $25.75 $0.00 1 182.08 -0.96% -3.47% 0 0 10 1 $25.50 1 189.82 -0.97% 4.25% 0 0 11 1 $28.50 1 202.17 11.76% 6.51% 0.01 0 12 1 $29.25 $0.00 1 211.28 2.63% 4.51% 0 0 13 1 $28.25 1 211.78 -3.42% 0.24% 0 0 14 1 $27.75 1 226.92 -1.77% 7.15% 0 0 15 1 $26.00 $0.00 1 238.90 -6.31% 5.28% 0.01 0 16 1 $28.50 1 235.52 9.62% -1.41% 0.01 0 17 1 $27.25 1 247.35 -4.39% 5.02% 0 0 18 1 $23.00 $0.00 1 250.84 -15.60% 1.41% 0.03 0 19 1 $18.25 1 236.12 -20.65% -5.87% 0.05 0.01 20 1 $23.00 1 252.93 26.03% 7.12% 0.06 0 21 1 $19.50 $0.00 1 231.32 -15.22% -8.54% 0.03 0.01 22 1 $20.25 1 243.98 3.85% 5.47% 0 0 23 1 $23.00 1 249.22 13.58% 2.15% 0.02 0 24 1 $21.00 $0.00 1 242.17 -8.70% -2.83% 0.01 0 25 1 $31.25 1 274.08 48.81% 13.18% 0.23 0.01 26 1 $38.00 1 284.20 21.60% 3.69% 0.04 0 27 1 $38.50 $0.00 1 289.20 1.32% 1.76% 0 0 28 1 $47.00 1 288.36 22.08% -0.29% 0.04 0 29 1 $43.88 1 290.10 -6.64% 0.60% 0.01 0 30 1 $44.00 $0.00 1 304.10 0.27% 4.83% 0 0 31 1 $47.75 1 318.66 8.52% 4.79% 0.01 0 32 1 $52.75 1 329.80 10.47% 3.50% 0.01 0 33 1 $57.75 $0.00 1 321.83 9.48% -2.42% 0.01 0 34 1 $26.00 1 251.79 -54.98% -21.76% 0.32 0.05 35 1 $21.50 1 230.30 -17.31% -8.53% 0.03 0.01 36 1 $26.50 $0.00 1 247.08 23.26% 7.29% 0.05 0 Time period Price (Stock) Return (Stock) (R(mt)- R(m))^2
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RISK RETURN 37 1 $25.50 1 257.07 -3.77% 4.04% 0 0 38 1 $28.25 1 267.82 10.78% 4.18% 0.01 0 39 1 $29.38 $0.00 1 258.89 4.00% -3.33% 0 0 40 1 $31.00 1 261.33 5.51% 0.94% 0 0 41 1 $30.75 1 262.16 -0.81% 0.32% 0 0 42 1 $36.13 $0.00 1 273.50 17.50% 4.33% 0.03 0 43 1 $34.75 1 272.02 -3.82% -0.54% 0 0 44 1 $28.00 1 261.52 -19.42% -3.86% 0.04 0 45 1 $27.50 $0.00 1 271.91 -1.79% 3.97% 0 0 46 1 $24.75 1 278.97 -10.00% 2.60% 0.01 0 47 1 $20.25 1 273.30 -18.18% -2.03% 0.04 0 48 1 $23.75 $0.00 1 277.72 17.28% 1.62% 0.03 0 49 1 $26.00 1 297.47 9.47% 7.11% 0.01 0 50 1 $25.75 1 288.86 -0.96% -2.89% 0 0 51 1 $26.25 $0.00 1 294.87 1.94% 2.08% 0 0 52 1 $29.00 1 309.64 10.48% 5.01% 0.01 0 53 1 $32.50 1 320.52 12.07% 3.51% 0.01 0 54 1 $29.00 $0.00 1 317.98 -10.77% -0.79% 0.01 0 55 1 $30.50 1 346.08 5.17% 8.84% 0 0.01 56 1 $30.00 1 351.45 -1.64% 1.55% 0 0 57 1 $32.25 $0.00 1 349.15 7.50% -0.65% 0 0 58 1 $33.75 1 340.36 4.65% -2.52% 0 0 59 1 $34.75 1 345.99 2.96% 1.65% 0 0 60 1 $34.50 $0.00 1 353.40 -0.72% 2.14% 0 0
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RISK RETURN
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RISK RETURN (R(jt)-R(j))(R(mt)-R(m)) 0 0 0 0 0 0 0 0 0 0.01 0 0 0 0 0 0 0 0.02 0.01 0.02 0 0 0 0.06 0 0 0 0 0 0 0 0 0.13 0.02 0.01
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RISK RETURN 0 0 0 0 0 0 0 0.01 0 0 0.01 0 0 0 0 0 0 0 0 0 0 0 0 0
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Notes Page 7 Notes on Beta Riskfree Rate The riskfree rate that is used in the CAPM can either be - (a) Short term Government Security Rate: because it has no default or interest rate risk.
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