BFIN620_PPT_CH11_sp09-6

BFIN620_PPT_CH11_sp09-6 - 11 1Risk Return andRisk Return...

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Unformatted text preview: 11- 1Risk, Return andRisk, Return andCapital BudgetingCapital BudgetingChapter 11Brealey-Myers-Marcus5thEditionBusiness Finance 62011- 2Topics CoveredMeasuring market riskBetaEstimating Intel’s betaPortfolio betasBeta of the market portfolioBalancing risk and returnCapital Asset Pricing Model (CAPM)Security Market Line (SML)Section 11.3 will not be covered until later in the course11- 3Measuring Market RiskMarket PortfolioPortfolio of all assets in the market economy.In practice, a broad stock market index (often the S&P 500) is used to represent the market.BetaA measure of the sensitivity of a stock’s return to fluctuations in the return on the market portfolio.Designed to isolate a stock’s market risk.11- 4Estimating Google’s BetaThe following spreadsheet extract illustrates the data required for this analysis:Prices are adjusted closing prices (adjusted for stock splits and dividend payments) from Yahoo! Finance.Prices are recorded monthly (beginning-of-the-month).SP500is the S&P 500 Composite Index (^GSPC).GOOGis the ticker symbol for Google common stock.SP500%is the monthly percent change in SP500; the monthly total return on the broader market. GOOG%is the percent change in GOOG; the monthly total return on the stock.11- 5MonthSP500GOOGSP500%GOOG%JAN 051,181.27195.621.89(3.90)FEB 051,203.60187.99(1.91)(3.98)MAR 051,180.59180.51(2.01)21.88APR 051,156.85220.003.0026.03MAY 051,191.50277.27(0.01)6.09JUN 051,191.33294.153.60(2.17)JUL 051,234.18287.76287....
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BFIN620_PPT_CH11_sp09-6 - 11 1Risk Return andRisk Return...

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