Case Study 06: The Beta for FLIR Systems Toey Mossa retinace graduate has just be his job with the investim G W P G one of the firm's founders, has been talking to Joey about the firm's investment portfolio As with any investment Paul is concerned about the risk of the investment as well as the pote r More specifically, because the company holds a diversified portfolio Paulis concerned about the m o re and potential investments. One position the company currently held is stockFURS I FURFURS design, manufactures, and markets thermal and infrared camera systems. Althou better for military applications, the company has divisions that design products for other applications such as t h e vision commercial products that require minute temperature difference measurements recreational e and fighting Covili and Wyatt currently uses a commercial data vendor for information about its position of thi s unsure exactly how the numbers provided are calculated. The data provider considers its methods proprietary and it will not disclose how stock bets and other information are calculated. Paul is uncomfortable with lowing at how these numbers are being computed and also believes that it could be less expensive to calculate the necessary statistics in-house. To explore this question, Paul has asked Joey to do the following assignments QUESTIONS 1. Go to finance yahoo.com and download the ending monthly stock prices for FLIR Systems (PUR) for the last 60 months. Be sure to use the adjusted closing price to account for any stock splits and dividend payments Next, download the ending value of the S&P SOD index over the same period. For the historical risk-free go to the St. Louis Federal Reserve website (www.stlouder) and find the three month Treasury constant maturity rate. Download this file. What are the monthly returns, average monthly returns, and standard deviations for FURSystems stock, the three month Treasury Will, and the S&P 500 for this period? 2 Beta is often estimated by linear regression model often used is called the market model, which R- R R -R) In this regression is the return on the stock and is the risk-free rate for the same period the return on a stock market index such as the S&P 500 index is the regression intercept and is the d e (and the stock's estimated beta). represents the residuals for the regression. What do you this the motivation for this particular regression? The intercept , is often called Jensen's What does measure? If an asset has a positive Jensen's alph, where would plot with respect to the SML What is the financial interpretation of the residuals in the regression Use the market model to estimate the beta for FUR Systems using the months of the regression procedure in Excel is one easy way to do this Piet the monthly turns on FLIR Systems against the index and show the fitted line 4 the why Compare your bets for FLIR Systems to the bea you findes finance yahoo.com How they bed Case Study 06: The Beta for FLIR Systems Toey Mossa retinace graduate has just be his job with the investim G W P G one of the firm's founders, has been talking to Joey about the firm's investment portfolio As with any investment Paul is concerned about the risk of the investment as well as the pote r More specifically, because the company holds a diversified portfolio Paulis concerned about the m o re and potential investments. One position the company currently held is stockFURS I FURFURS design, manufactures, and markets thermal and infrared camera systems. Althou better for military applications, the company has divisions that design products for other applications such as t h e vision commercial products that require minute temperature difference measurements recreational e and fighting Covili and Wyatt currently uses a commercial data vendor for information about its position of thi s unsure exactly how the numbers provided are calculated. The data provider considers its methods proprietary and it will not disclose how stock bets and other information are calculated. Paul is uncomfortable with lowing at how these numbers are being computed and also believes that it could be less expensive to calculate the necessary statistics in-house. To explore this question, Paul has asked Joey to do the following assignments QUESTIONS 1. Go to finance yahoo.com and download the ending monthly stock prices for FLIR Systems (PUR) for the last 60 months. Be sure to use the adjusted closing price to account for any stock splits and dividend payments Next, download the ending value of the S&P SOD index over the same period. For the historical risk-free go to the St. Louis Federal Reserve website (www.stlouder) and find the three month Treasury constant maturity rate. Download this file. What are the monthly returns, average monthly returns, and standard deviations for FURSystems stock, the three month Treasury Will, and the S&P 500 for this period? 2 Beta is often estimated by linear regression model often used is called the market model, which R- R R -R) In this regression is the return on the stock and is the risk-free rate for the same period the return on a stock market index such as the S&P 500 index is the regression intercept and is the d e (and the stock's estimated beta). represents the residuals for the regression. What do you this the motivation for this particular regression? The intercept , is often called Jensen's What does measure? If an asset has a positive Jensen's alph, where would plot with respect to the SML What is the financial interpretation of the residuals in the regression Use the market model to estimate the beta for FUR Systems using the months of the regression procedure in Excel is one easy way to do this Piet the monthly turns on FLIR Systems against the index and show the fitted line 4 the why Compare your bets for FLIR Systems to the bea you findes finance yahoo.com How they bed