Susan Christoffersen Phd

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Case #3

Data: Using the Internet, obtain pricing information for any stock of your choosing that is listed on the New York Stock Exchange (NYSE). Record closing prices for the end of the week for at least a three year period. This should give you about 156 data points. If there is a holiday, use the closing price for the previous day, do not enter zero. An easy to access site is http://investor.msn.com. Also download the appropriate stock market index for the same time frame.

An alternative for those who are absolutely unable to use the Internet is to visit the Reference section of the library and use the Standard and Poor’s (S&P) Daily Price Quotations for the New York Stock Exchange. This will involve a significant amount of data entry (over 300 4-digit numbers) from 12 different volumes. Note that prices are recorded as fractions of a dollar, not dollars and cents. Thus you must convert the fraction (in eighths) to decimals (cents). For example, if the price is 10-02, this means ten dollars and two eighths, which should be converted to $10.25. Use the S&P Composite Index for the measure of the Market’s overall performance. This can be found in the front of the book of price quotations.

 

Analysis: Calculate the rates of return for your stock and for the market index.

Using these rates of return calculate the Beta coefficient for your stock by regressing the stock’s return on the market’s performance. This can be done in an Excel worksheet, using the Tools menu, under Data Analysis (Regression) OR using the function wizard, and specifying the statistical function: slope.

Reference the textbook appendix for chapter five which illustrates the slope. Create a scatter graph of the rates of return, with the Market rates of return on the X-axis and the Stock’s rate of return on the Y-axis, as on pg. 222 in the appendix.

 

Write-up:

Explain the key concepts: rate of return and Beta coefficient.

Report your results and explain their implications. Attach your data sets as well as the scatter diagram.

What is the required rate of return for your stock? Explain the parameters used in your calculations.

Given the required rate of return, recommend a buy/sell decision for an investor and explain the basis for your recommendation.

Using sensitivity analysis, determine the sensitivity of your required return to changes in risk-aversion and then to changes in T-bill rates.

Please use correct grammar and spelling. Organize your presentation and proof read your paper. It should be about one page in length.

 

Presentation: Prepare either PowerPoint slides or overhead projection slides to briefly explain your results to the class.

 

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