Assistance on Finance Assignment

Symbol of Mutual Fund

5-year Risk-Free Rate of Return

Mutual Fund Betas (β)

5-Year Return on Top 500 Stocks

Required Return on Investment

Actual Return

Performance

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finc390_ph3_ip_assignment.docx

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FINC390-1404A-01 Introduction to Corporate Finance

Task Name:

Phase 3 Individual Project

Deliverable Length:

Word document of 700–1,000 words with attached Excel spreadsheet showing calculations

Details:

Weekly tasks or assignments (Individual or Group Projects) will be due by Monday, and late submissions will be assigned a late penalty in accordance with the late penalty policy found in the syllabus. NOTE: All submission posting times are based on midnight Central Time.

After engaging in the dialogue about the concept of risk and return with your colleagues, you will now be given an opportunity to apply the principles that were presented in this Phase. Using current market data and the capital asset pricing model, determine the required return of the following assets based on the betas provided below. Your mentor suggests using the 5-year U.S. government bond yield as your risk-free rate and the 5-year market return that you calculated in Phase 1.

· Asset A, Beta = 0.5

· Asset B, Beta = 1.0

· Asset C, Beta = 2.0

Asset	5-year Risk-Free Rate of Return	Beta (β) (Given)	5-Year Return on Top 500 Stocks	Required Return on Investment
Asset 'A'		0.50
Asset 'B'		1.00
Asset 'C'		2.00

After completing your calculations, summarize your observations with regard to the relationship between risk and return based on the results of this experiment.

For Part 2 of this task, you will need to select 3 mutual funds with different betas and use the capital asset pricing model to approximate the 5-year minimum required return for each of these funds based on their individual betas. After you calculate the 5-year required return, you can now compare it to the actual 5-year returns of these funds and determine whether they are over- or underperforming.

In your writeup associated with this activity, be sure to present and explain your results as they relate to risk and return, and explain the following:

· Why mutual fund investing is generally considered less risky than purchasing individual assets?

· How are the CAPM and the SML related and can be used to identify over- and underperforming investments?

· How do inflationary expectations and the markets' perception of risk affect the slope and origin of the SML?

Note: You can find information about the top 500 stocks at this Web site.

Reference

S&P 500 index chart. (2014). Retrieved from the Yahoo! Finance Web site: http://finance.yahoo.com/echarts?s=%5egspc+interactive#symbol=^gspc;range=1y;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=;

Be sure to document your paper with in-text citations, credible sources, and a list of references used in proper APA format.

Please submit your assignment.

For assistance with your assignment, please use your text, Web resources, and all course materials.

Course Materials

Points Possible:

150

Date Due:

Monday, Oct 27, 2014

Objective:

 Demonstrate an understanding of the time value of money

 Demonstrate the ability to perform interest rate calculations for single and multiple time period cash flows.

Submitted Files:

Submit Task

Score:

N/A