For this question, we will use the following tabulated monthly return data (similar to what you...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
For this question, we will use the following tabulated monthly return data (similar to what you worked for #12 in your first assignment): A B с D E 1 2 3 Avel Ave2 4 5 SD1 6 SD2 7 Skew1 8 Skew2 9 Kurt1 10 Kurt2 Small Medium 1.2361 1.2558 8.2273 5.3825 High 1.5147 1.3624 10.0162 5.5700 2.3286 -0.4504 18.0033 3.8985 Low 1.0658 0.8986 8.1038 6.8098 1.2889 1.6169 -0.4087 -0.5399 10.2735 13.5372 1.9277 3.2174 All Figures are in Percentages Big Medium 0.9272 0.9908 6.6705 4.7012 4.3725 -0.0257 1.6694 -0.3251 -0.4093 6.7632 17.4930 1.9199 2.3740 F Low 0.9225 0.9267 5.7961 G High 1.2764 1.0887 8.7584 4.9146 1.7480 -0.5204 14.8482 2.7469 Calculate the average monthly return premium on the SMB and HML portfolios in the second period (1971-2018). For example, SMB will be given by [(B4+C4+D4) − (E4+F4+G4)]/3. Similarly, HML will be given by [(D4 - B4) + (G4E4)]/2, i.e., the average of the two differences observed. Convert the monthly premiums to annual rates by using the following formula: - P= (1+P)¹²- Note: All the returns in the table above are in percentages. Always perform mathematical operations using numbers in decimal format, in this case, the values divided by 100. b. Recall the 3-factor FF model: E(R) = R₁ + 3 (R₁ - R₂)+ MB (S-R, -(B-R)) + 3 (H-R, -(L-R,)) B f M M HML = R₁ +3₁ (RM-R₁) + SMB (SB) + 3HM (HL) f State the risk/return relationship above, if the annual risk-free rate is 2% and the return on the market portfolio is 6.5%. c. You are valuing a company using the Gordon Growth Model with constant growth rate of 3%, and the most recent dividend payment of $1 per share. Find the fair market value of the company using the CAPM model, if the stock has a beta of 1.2. d. Using the same company and data as in part (c), compute the fair value of the company, if the SMB beta is -0.2, and the HML beta is 0.7. Contrast your finding to that of part (c). What do you conclude? Can you characterize this company with the data available? For this question, we will use the following tabulated monthly return data (similar to what you worked for #12 in your first assignment): A B с D E 1 2 3 Avel Ave2 4 5 SD1 6 SD2 7 Skew1 8 Skew2 9 Kurt1 10 Kurt2 Small Medium 1.2361 1.2558 8.2273 5.3825 High 1.5147 1.3624 10.0162 5.5700 2.3286 -0.4504 18.0033 3.8985 Low 1.0658 0.8986 8.1038 6.8098 1.2889 1.6169 -0.4087 -0.5399 10.2735 13.5372 1.9277 3.2174 All Figures are in Percentages Big Medium 0.9272 0.9908 6.6705 4.7012 4.3725 -0.0257 1.6694 -0.3251 -0.4093 6.7632 17.4930 1.9199 2.3740 F Low 0.9225 0.9267 5.7961 G High 1.2764 1.0887 8.7584 4.9146 1.7480 -0.5204 14.8482 2.7469 Calculate the average monthly return premium on the SMB and HML portfolios in the second period (1971-2018). For example, SMB will be given by [(B4+C4+D4) − (E4+F4+G4)]/3. Similarly, HML will be given by [(D4 - B4) + (G4E4)]/2, i.e., the average of the two differences observed. Convert the monthly premiums to annual rates by using the following formula: - P= (1+P)¹²- Note: All the returns in the table above are in percentages. Always perform mathematical operations using numbers in decimal format, in this case, the values divided by 100. b. Recall the 3-factor FF model: E(R) = R₁ + 3 (R₁ - R₂)+ MB (S-R, -(B-R)) + 3 (H-R, -(L-R,)) B f M M HML = R₁ +3₁ (RM-R₁) + SMB (SB) + 3HM (HL) f State the risk/return relationship above, if the annual risk-free rate is 2% and the return on the market portfolio is 6.5%. c. You are valuing a company using the Gordon Growth Model with constant growth rate of 3%, and the most recent dividend payment of $1 per share. Find the fair market value of the company using the CAPM model, if the stock has a beta of 1.2. d. Using the same company and data as in part (c), compute the fair value of the company, if the SMB beta is -0.2, and the HML beta is 0.7. Contrast your finding to that of part (c). What do you conclude? Can you characterize this company with the data available?
Expert Answer:
Answer rating: 100% (QA)
SMB The SMB monthly return premium for the second period 19712018 can be calculated by taking the average of the returns in the B C and D columns minu... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
Students also viewed these marketing questions
-
For this problem we will use the data in the file Global100 that was referenced in Section 3.4 as an example for creating a treemap. Here we will use these data to create a GIS chart. A portion of...
-
In this exercise we will use the expressions given in section 9.6.3 on page 271 and in section 9.8.5 on page 296 to calculate the relaxation rate constants which arise from the dipolar relaxation of...
-
1. In this question, we will use the following notations: PU and PR are the Public and its [M]K : message M is decrypted with K. corresponding Private keys. K is a symmetric Key. {M}PU: message M is...
-
The accompanying data were read from graphs that appeared in the article Bush Timber Proposal Runs Counter to the Record (San Luis Obispo Tribune, September 22, 2002). The variables shown are the...
-
Portions of the financial statements for Myriad Products are provided below. Required: Prepare the cash flows from operating activities section of the statement of cash flows for Myriad Products...
-
Consider the equation of motion of a simple pendulum: a. Linearize Eq. (E.1) about an arbitrary angular displacement \(\theta_{0}\) of the pendulum. b. Investigate the stability of the pendulum about...
-
Why are strategic technologies important to strategic planning?
-
Floras Fabulous Fountains (FFF) top product is its Model A. Using the information given, draw the product structure tree for the ModelA. Usage Lead Immediate per Time Beginning Parent Parent (weeks)...
-
A systems administrator is searching for potential vulnerabilities in the network. Which threat-hunting focus area should the administrator examine, as attackers often exploit it through connected...
-
A compressive load P is transmitted through a rigid plate to three magnesium-alloy bars that are identical except that initially the middle bar is slightly shorter than the other bars (see figure)....
-
Marvel Parts, Incorporated, manufactures auto accessories including a set of seat covers that can be adjusted to fit most cars. According to its standards, the factory should work 1,055 hours each...
-
True Or False Courts are more likely to find proximate cause in a strict liability case than in a negligence case and to deny liability if there is an unforeseen, intervening cause in a negligence...
-
What is the theory of alternate liability?
-
For goods to be ____________ they must be fit for the ordinary purpose for which such goods are used.
-
True Or False Obviousness of danger precludes an obligation to warn.
-
True Or False Most courts restrict contract recovery to economic losses and tort recovery to damages to property or persons.
-
EXERCISE 2 In this exercise, you must write a program that analyses a large text file. The main objectives are: 1) Search for five words in a text file. These words are given by a user. 2) Store the...
-
In Exercises 105108, evaluate each expression without using a calculator. log(ln e)
-
Ken (age 31) and Amy (age 28) Booth have brought you the following information regarding their income, expenses, and withholding for the year. They are unsure which of these items must be used to...
-
Quince Corporation has taxable income of $450,000 for its 2012 calendar tax year. Calculate the corporation's income tax liability for 2012 before tax credits. $_________
-
During 2012, Palo Fiero purchases the following property for use in his manufacturing business: Palo uses the accelerated depreciation method under MACRS, if available, and does not make the election...
-
The U-tube in Fig. P2.160 rotates at \(2.0 \mathrm{rev} / \mathrm{sec}\). Find the absolute pressures at points \(C\) and \(B\) if the atmospheric pressure is 14.696 psia. Recall that \(70{ }^{\circ}...
-
A failure report states that a safety transmitter signaled a high pressure in a vessel and initiated a trip. Other pressure measurements did not indicate any high pressure. A diagnostic in the safety...
-
Each of the 50 transmitters in identical service had a test time of 7,640 hours. During this period, no failures occurred. Describe the procedure for calculating the failure rate.
Study smarter with the SolutionInn App