Intermediate Financial Management

BA 316 Project Part 1 Identify a company face at financial statements (from previous years, at least one year) Conduct proportion analysis. Use Dupont equation from results.. Make a financial statement Organize and psychoanalyse Statements Make recommendations how forget you improve the enter Strengths, weaknesses, etc. Part 2 soothsaying Statistical Analysis Standard stopping point of 10% Determine location of advanced funds (borrowing, issuance of stocks, capital) ? page to 1 page proposal before start project Chapter 2 Homework (5 , 9) & mini grounds (a i), (12 for 08/31) *Mini Case (j m) for 09/12 correlativity Co competent - Degree of disagreement Possibilities of economy on investments ProbabilityRate of Return A Pessimistic. 2513% Likely. 5015% Optimistic. 2517% Realized Rate of Return & correlation coefficient Coefficient *** foretell Correlation of Coefficient for these stocks Stocks X, Y, and Z course of instruction 1Year 2Year 3Year 4Year 5Avg? X8%10%12% 14%16%12%3. 16 Y16%14%12%10%8%12%3. 16 Z8%10%12%14%16%12%3. 16 Correlation A statistical measure of the relationship amidst the straddles of submit of devil summationsCorrelation Coefficient A statistical measure of the story of the relationship betwixt the reckons of return of deuce summations. Positively Correlated Describes devil rates of return that move in the same direction Negatively Correlated- Describes cardinal rates of return that move in opposite directions ?= t=1n(ri,t-ri,avg)(rj,t rj,avg)t=1nri,t-ri,avg2t=1nrj,t rj,avg2 Yearr? xryrz 18%16%8%Rxy= 2101410 3121212Rxz= 4141014 516816 Diversifiable Risk Company-specific stake disorganised seek S&P, NASDAQ, Dow Jones Non-Diversifiable Risk securities industry RiskSystematic Risk The guess of a portfolio depends on the correlation coefficient of returns on the as commemorates within the portfolio. 1. If rate of return of two assets argon absolutely positively correlated, R = 1 2. If rate of return of two assets are perfectly negatively correlated, R = -1 3. If rate of return of two assets are independent, -1 R 1 Beta Coefficient b Measure of the risk that one asset can contribute to a portfolio ry = a + b(rM) When genus Beta is positive, it means that the stock moves with the merchandise And vice-versa if beta is negativeBeta measures the non-diversifiable risk of an asset. Find Correlation Coefficient (as a portfolio) Calculate beta Use S&P What should be the risk of the portfolio? **Pick a pair Exxon & BP Walmart & Kroger Verizon & AT&T Toyota & crosswalk CAPM Capital Asset Pricing object lesson A model that describes the relationship between the required rate of return and the non-diversifiable risk of a portfolio rMrxryrz 55102. 5 1010205 1515307. 5 20204010 25255012. 5 30306015 r17. 517. 5358. 75 b1120. 50 ?111 bx= ? rx? rm? xm = ? x? m? xmSML Equation ri = rrf + (rm rrf)bi IF rm = 9% RRF = 3% bA = 0. 5 bB= 1 bC= 2 Slope of SML line provides the riskiness of the groc ery, aka mart risk premium. Chapter 3 page 76 Optimal Portfolio Homework (7) Covariance COVAB = i=1nrAi- rArBi- rBPi ProbabilityAsset AAsset crop out CAsset DAsset E .158%4%12%2%4% .20861046 .3088878 .2081061210 .1581241612 r ? 88888 ?02. 522. 524. 662. 52 COV COVxy= ? x ? y(? xy) Solve COVBD, COVBE, COVCD Calculate risk without beta ?p= wx2? x2+(1-w)y2? y2+2w(1-w)? xy? x? y ii key factors for investing How much is the rate of returnWhat is the risk involved If COV is queen-sized & positive Portfolio standard expiration will be between the two complete deviations If COV is large & negative Portfolio standard deviation will be minimized (lower than the last-place one) Analyzing portfolio options Asset AAsset B r ? 5%8% ?410 wawbr ? p 100%05. 0 75%25%5. 75 50%50%6. 5 25%75%7. 25 0100%8. 0 ?p ?ab = 1? ab = 0? ab = -1 Linear relationship between increases in portion changes of asset A vs. asset B Percentage change in risk also remains unremitting if perfectly positively or perfec tly negatively correlatedLook into financial statements for project, bring to class 09-28 r ? A = 5% ?A = 4% r ? B = 8% ?B = 10% wAwbr ab = 1? ab = 0 ? ab = -1 100%0%5%444 75255. 755. 53. 90. 5 50506. 57. 05. 43. 0 25757. 258. 57. 66. 5 01008. 010. 010. 010. 0 Plot rate of return on y-axis and risk on x-axis The feasible set will be determined approximately Efficient portfolio Provides maximum expected rate of return with the least risk. The capital market line Shows the possibility that investors could have an efficient portfolio outside of the feasible set short borrowing and short-term lending