Homework Set4

Homework Assignment Set 3: Chapters 6, 7, & 8

Name

University

FIN 534 Financial Management

Professor

13 May 2019

A. Using the two stocks you selected from Homework #1, identify the Beta for each stock. In your own words, what conclusion can you draw from the stocks’ current and historical beta? If the stock market went up 10% today, what would be the impact on each of your stocks?

There are two types of stocks; Blandy stock and Gourmange.

Pim = Correlation between Blandy and Gourmange

σi = Standard deviation stock

σm = Standard deviation market

For standard alone investment

1. Blandy Stock

Beta = = 0.1379

2. Gourmange stock

Beta = = 0.2112

For portfolio

1. Blandy Stock

Beta = = 0.1249

2. Gourmange

Beta = = 0.1913

In standalone investment, the investment risk is high as compared to the risk of portfolio because portfolio diversifies the risk using various assets.

If the stock market went up by 10% today, the overall profit of the Blandy and Gourmange stock would increase.

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B. Using the 2014 financial statements from your stocks above and the equations from your textbook, prepare the Historical Average and Standard Deviation for each stock.

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