Intermediate Financial Management

BA 316 Project Part 1 Identify a community Look at financial statements (from previous years, at least virtuoso year) Conduct ratio analysis. Use Dupont equation from results.. Make a financial statement Organize and Analyze Statements Make recommendations how will you improve the herald Strengths, weaknesses, etc. Part 2 Forecasting Statistical Analysis ensample Goal of 10% Determine location of new funds (borrowing, consequence of stocks, slap-up) ? page to 1 page proposal before starting leap out Chapter 2 provision (5 , 9) & Mini parapraxis (a i), (12 for 08/31) *Mini Case (j m) for 09/12 correlation Coefficient - Degree of variability Possibilities of economy on investments ProbabilityRate of relapse A Pessimistic. 2513% Likely. 5015% Optimistic. 2517% Realized Rate of Return & correlativity Coefficient ***Calculate Correlation of Coefficient for these stocks Stocks X, Y, and Z Year 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 descent between the puts of drive out of cardinal assetsCorrelation Coefficient A statistical measure of the degree of the relationship between the crops of kick in of two assets. Positively Correlated Describes two casts of return that move in the same direction ostracizely Correlated- Describes two 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 essay Unsystematic venture S&P, NASDAQ, Dow Jones Non-Diversifiable Risk Market RiskSystematic Risk The happen of a portfolio depends on the correlation coefficient of returns on the assets within the portfolio. 1. If rate of return of two assets are perfectly 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 important is positive, it means that the stock moves with the market And vice-versa if of import 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 & Ford CAPM Capital Asset set Model 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 endangerment of the market, aka market risk premium. Chapter 3 page 76 Optimal Portfolio Homework (7) Covariance COVAB = i=1 nrAi- rArBi- rBPi ProbabilityAsset AAsset BAsset 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 Two key factors for investing How very much is the rate of returnWhat is the risk involved If COV is great & positive Portfolio mensuration deviation will be between the two stand-alone 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 coulomb%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 motleys of asset A vs. asset B Percentage change in risk also remains constant if perfectly positively or perfectly negatively correlatedLook into financial statements for project, loan 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 viable set will be determined most 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-term borrowing and short-term lending