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Analysis of a Industrial Mid Cap Firm

# Analysis of a Industrial Mid Cap Firm - FINANCIAL...

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FINANCIAL MANAGEMENT – I Take Home Assignment Submission IV Submitted By: Roll No. B11076 Part I: Return and Risk Estimations Using CAPM a/Compute the Geometric returns & Averages returns of investing in your company, suitable benchmark index, and one of its peer stock (if possible) for the past five years. Please adjust your company's stock prices for issues such as Dividend, Bonus, Stock Split, etc. Make use of a 5-year data (weekly) and one year data (daily) Calculations Based on 5 Years Weekly Data BSE 500 1 ELECON 2 TRF 3 Geometric Return [∏(1+ri)] 1/T -1 1.0013% -0. 495% -0.085% Arithmetic Average Return (∑ri)/T 0.226% 0. 0380% 0.3223% Calculations Based on 1 Year Daily Data BSE 500 1 ELECON 2 TRF 3 Geometric Return [∏(1+ri)] 1/T -1 1.0037% -1.957% -1.957% Arithmetic Average Return (∑ri)/T 0.043% -0.0975% -0.0975% b/Compute your company Beta using five year weekly returns data and also one year daily returns data. Using an appropriate benchmark indices (I will prefer your using the broadest available index). Comment on the values arrived after you look at stability of the regression, error, data issues, etc. COVARIANCE METHOD β=Cov (Ri,Rm)/(σrm) 2

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BSE Mean 0.190518641 BSE Standard Deviation 4.06156387 ELECON Mean 0.013392106 ELECON Standard Deviation 0.162172309 BETA (COVARIANCE METHOD) -0.008171989 Computation of Beta based on 5 Years Weekly Data BETA (REGRESSION METHOD) -0.0082 1 http://www.bseindia.com/stockinfo/indices.aspx 2 http://in.finance.yahoo.com/q/hp?s=ELECON.BO 3 http://in.finance.yahoo.com/q/hp?s=TRF.BO Computation of Beta based on 1 Year Daily Data COVARIANCE METHOD β=Cov (Ri,Rm)/(σrm) 2 BSE Mean -0.000862121 BSE Standard Deviation 0.011781104 ELECON Mean -0.000975367 ELECON Standard Deviation 0.020773865 BETA (COVARIANCE METHOD) 0.367736773 BETA (REGRESSION METHOD) 0.1187 Analysis: The beta value estimated over 5 years horizon yields close results in Covariance Method and Regression Method. The value is loosely correlated with the market index. The one year horizon is too short for adequately measure the effect or correlation between the market returns and the stock returns. A year comprises of several isolated events which hampers the observation. A Long period of 5 years evens out such happenings and provides a clear picture of the actual scenario.
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