Problem Day Cost of Capital 11.30.2011 (2)

# Problem Day Cost of Capital 11.30.2011 (2) -...

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Problem Day: Cost of  Capital

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Housekeeping Items POW Quiz due this Thursday by 5pm Ch. 13 Reading Quiz due Monday morning at 8am Service and Career Development Quizzes are posted on  Blackboard.  Please record your completion for extra  credit. POW Quiz also due Thursday, December 8 by 5pm
Stay In Touch Rhett “alpha male” Weller Todd “the man” Castagna

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Some POW Hints… (because we are awesome) Holding period is the return for the period. To calculate it: (New – Old) (Old) For Standard Deviation, use the formula in the book in the FOOTNOTE Pg 8-2 Or use Excel function =STDEV() Don’t annualize the monthly returns Using the CAPM, for market return, take the average monthly return of the market

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Free Quiz Question! Professional Development Morning Market Call – BYU business news show Company analysis, internship experience, Marriott School clubs, market commentary, etc The quiz question will be…. (drum roll please) “I have done (or will do) one of following: ‘Like’ Morning Market Call on Facebook

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Today’s Agenda CAPM Build-up Method WACC
Capital Asset Pricing Model 3 components: Risk free rate (usually something like Treasuries) Market Return Beta Formula: Rf + B(Rm – Rf)

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Variability of Returns Compared with Size of Portfolio 1 10 20 25 49% - 24% - 19% - Systematic or nondiversifiable risk (result of general market influences) Unsystematic or diversifiable risk (related to company-unique events) Total Risk Number of stocks in portfolio Average annual standard deviation (%)
Where do Beta’s come from? Beta measures the amount of

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Problem Day Cost of Capital 11.30.2011 (2) -...

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