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Assignment - 1 (ISB) - Due Oct 27

(1) The document instructs students to use an Excel file to calculate the Capital Asset Pricing Model (CAPM) beta for three US firms using monthly excess return data. (2) It asks students to explain how the computed betas correspond to the relative riskiness of the firms based on their underlying business drivers. (3) Students are then asked to analyze the major macroeconomic exposures faced by each firm and how these exposures could explain differences in risk across the firms.

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Chinmay Gupta
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131 views

Assignment - 1 (ISB) - Due Oct 27

(1) The document instructs students to use an Excel file to calculate the Capital Asset Pricing Model (CAPM) beta for three US firms using monthly excess return data. (2) It asks students to explain how the computed betas correspond to the relative riskiness of the firms based on their underlying business drivers. (3) Students are then asked to analyze the major macroeconomic exposures faced by each firm and how these exposures could explain differences in risk across the firms.

Uploaded by

Chinmay Gupta
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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Assignment #1, Lundblad

ISB

Part I:
(1) Use the EXCEL file assignment 1 data.xls (worksheet beta calculation). For
each month and firm (three US firms provided), compute the Capital Asset
Pricing Model

by

computing the slope of the relationship


between the excess return for each firm on the excess return on the market
portfolio. The data provided are excess returns (firm return less the risk free rate).
Use the EXCEL formula [ = Slope( , )] with the two columns (firm excess return
and market excess return) or you can directly run the regression as you would in
your statistics class. This is the for the firm.
(2) How do these computed s correspond to the riskiness of the firms and their
underlying earnings drivers?
(3) Now think a bit about businesses represented above. Explain the major
macroeconomic exposures they face as they pertain to their earnings generation.
Can you link the variation across firms in these macro exposures to the variation
in these risks?
Part II:
Combine your thoughts about the variation in firm risk exposures you identified for
each firm in Part I along with a view of the global macro-economy going forward.
How might you internalize this information into managerial decision-making? Hiring
practices, capital expenditures, etc.
In total, this need not take more than a few written pages. One assignment per group.

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