Business, 28.07.2020 18:01 justicejesusfreak

Use the data given to calculate annual returns for Goodman, Landry, and the Market Index, and then calculate average returns over the five-year period. (Hint: Remember, returns are calculated by subtracting the beginning price from the ending price to get the capital gain or loss, adding the dividend to the capital gain or loss, and dividing the result by the beginning price. Assume that dividends are already included in the index. Also, you cannot calculate the rate of return for 2010 because you do not have 2009 data.) Data as given in the problem are shown below:
Goodman Industries Landry Incorporated Market Index
Year Stock Price Dividend Stock Price Dividend Includes Divs.
2016 $25.88 $1.73 $73.13 $4.50 17,495.97
2015 $22.13 $1.59 $78.45 $4.35 13,178.55
2014 $24.75 $1.50 $73.13 $4.13 13,019.97
2013 $16.13 $1.43 $85.88 $3.75 9,651.05
2012 $17.06 $1.35 $90.00 $3.38 8,403.42
2011 $11.44 $1.28 $83.63 $3.00 7,058.96
We now calculate the rates of return for the two companies and the index:
Goodman Landry Index
2016
2015
2014
2013
2012
Average
Note: To get the average, you could get the column sum and divide by 5, but you could also use the function wizard, fx. Click fx, then statistical, then Average, and then use the mouse to select the proper range. Do this for Goodman and then copy the cell for the other items.
b. Calculate the standard deviation of the returns for Goodman, Landry, and the Market Index. (Hint: Use the sample standard deviation formula given in the chapter, which corresponds to the STDEV function in Excel.)
Use the function wizard to calculate the standard deviations.
Goodman Landry Index
Standard deviation of returns
c. Construct a scatter diagram graph that shows Goodman’s and Landry’ returns on the vertical axis and the Market Index’s returns on the horizontal axis.
It is easiest to make scatter diagrams with a data set that has the X-axis variable in the left column, so we reformat the returns data calculated above and show it just below.
Year Index Goodman Landry
2016 0.0% 0.0% 0.0%
2015 0.0% 0.0% 0.0%
2014 0.0% 0.0% 0.0%
2013 0.0% 0.0% 0.0%
2012 0.0% 0.0% 0.0%
To make the graph, we first selected the range with the returns and the column heads, then clicked the chart wizard, then choose the scatter diagram without connected lines. That gave us the data points. We then used the drawing toolbar to make free-hand ("by eye") regression lines, and changed the lines color and weights to match the dots.
d. Estimate Goodman’s and Landry’s betas as the slopes of regression lines with stock returns on the vertical axis (y-axis) and market return on the horizontal axis (x-axis). (Hint: use Excel’s SLOPE function.) Are these betas consistent with your graph?
Goodman's beta =
Landry' beta =
e. The risk-free rate on long-term Treasury bonds is 6.04%. Assume that the market risk premium is 5%. What is the expected return on the market? Now use the SML equation to calculate the two companies' required returns.
Market risk premium (RPM) = 5.000%
Risk-free rate = 6.040%
Expected return on market = Risk-free rate + Market risk premium
= 6.040% + 5.000%
= 11.040%
Required return = Risk-free rate + Market Risk Premium x Beta
Goodman:
Required return =
=
Landry:
Required return = x
=
f. If you formed a portfolio that consisted of 50% Goodman stock and 50% Landry stock, what would be its beta and its required return?
The beta of a portfolio is simply a weighted average of the betas of the stocks in the portfolio, so this portfolio's beta
would be:
Portfolio beta =

Answers: 2

Show answers

Another question on Business

Business, 22.06.2019 05:10

Responsible for setting the goals and planning for the future as well as leading and controlling the work of others. out the decisions of top management. often responsible for various departments such as the production, marketing, and accounting departments. process or function of planning organizing leading and controlling. the resources arranged in an orderly and functional way to accomplish goals and objectives. the company on track and making sure goals are met. for the daily operations of a business. examples of this are supervisors, office managers, and crew leaders. act or process of creating goals and objectives as well as the strategies to meet them. for the daily operations of a business. examples of this are supervisors, office managers, and crew leaders. how the firm is structured and who is in charge of whom. direction and vision

Answers: 3

Answer

Business, 22.06.2019 08:30

Most angel investors expect a return on investment of question options: 20% to 25% over 5 years. 15% to 20% over 5 years. 75% over 10 years. 100% over 5 years.

Answers: 1

Answer

Business, 22.06.2019 09:40

Boone brothers remodels homes and replaces windows. ace builders constructs new homes. if boone brothers considers expanding into new home construction, it should evaluate the expansion project using which one of the following as the required return for the project?

Answers: 1

Answer

Business, 22.06.2019 14:20

Cardinal company is considering a project that would require a $2,725,000 investment in equipment with a useful life of five years. at the end of five years, the project would terminate and the equipment would be sold for its salvage value of $400,000. the company’s discount rate is 14%. the project would provide net operating income each year as follows: sales $2,867,000 variable expenses 1,125,000 contribution margin 1,742,000 fixed expenses: advertising, salaries, and other fixed out-of-pocket costs $706,000 depreciation 465,000 total fixed expenses 1,171,000 net operating income $571,000 1. which item(s) in the income statement shown above will not affect cash flows? (you may select more than one answer. single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. any boxes left with a question mark will be automatically graded as incorrect.) (a)sales (b)variable expenses (c) advertising, salaries, and other fixed out-of-pocket costs expenses (d) depreciation expense 2. what are the project’s annual net cash inflows? 3.what is the present value of the project’s annual net cash inflows? (use the appropriate table to determine the discount factor(s) and final answer to the nearest dollar amount.) 4.what is the present value of the equipment’s salvage value at the end of five years? (use the appropriate table to determine the discount factor(s) and final answer to the nearest dollar amount.) 5.what is the project’s net present value? (use the appropriate table to determine the discount factor(s) and final answer to the nearest dollar amount.)

Answers: 2

Answer

You know the right answer?

Use the data given to calculate annual returns for Goodman, Landry, and the Market Index, and then c...

Questions