FINA 6305
Managerial Finance
Term Project Extra Credit (Optional)
Question 1: Executive report on company’s financial healthiness vs investor’s analysis of stock prospect
Instructions:
(a) Assume you are the CFO of your term project company. From the executive’s perspective, what is your company’s financial healthiness and what are your suggestions to improve the company’s financial position in the post-Covid and high inflation era? Please explain. (expected words: 500)
(b) Assume you are an investment portfolio manager and you make decisions on stock investments for your clients. What is your suggestion to your clients in the post-Covid and high inflation era – specifically, the client should over-weigh and under-weigh which industry sector? Please explain. (expected words: 500)
(c) Please reflect what you have learned in the class, and list three major criteria you will apply when making personal financial decisions. Please explain. (expected words: 500)
Optional Question 2: Manually calculate beta from Regression Analysis. (3% extra credit on final grade).
Instructions:
Please go to finance.yahoo.com ad download the ending monthly stock prices (your term project company) for the last 60 months. Use the adjusted closing price, which adjusts for divided payment and stock splits. Next download the ending value of the S&P 500 index over the same period. For the historical risk-free rate, go to the St. Louis Federal Reserve website (www.stlouisfed.org) and find the three-month Treasury bill secondary market rate. Download this file.
· Step 1: Calculate the monthly returns, average monthly returns, and standard deviations for your company’s stock, the 3-month Treasury Bill, and the S&P 500 for this period.
· Step 2: Beta is often estimated by linear regression. A model is commonly used is called the market model, which is:
(Ri - Rf) = alpha + beta*(Rm - Rf) + e
or term
In this regression, Ri is the return on the stock and Rf is the risk-free rate for the same period. Rm is the return on a stock market index such as the S&P 500 index. Alpha is the regression intercept, and Beta is the slope. Please estimate Beta and plot the SML by following the example https:
www.youtube.com/watch?v=7LiK-qbmPsw
Please note extra credit will be assigned only if your calculation is co
ect. If your calculation is inco
ect, you will no extra credit.