Part 1
The stock’s beta has driven
implications for every stock (Mitra & Khanna, 2014). It should be noticed
that every stock has a beta of lesser than one and that the beta is expressing
the basic tradeoff between reducing risks and increasing returns. If the stock
market goes up to 10 percent today, then we can expect the stock to be
volatile. For instance, if the stock of the two companies goes up to 10
percent, then the spreadsheet can be referred for knowing the impact of beta.
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Calculating Beta Risk
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|
2014 Stock of the First Company
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|
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Beta
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0.29
|
|
10 percent increase
|
0.1
|
|
|
0.029
|
|
|
0.319
|
|
|
0.56480
|
|
New Stock Beta
|
1
|
|
2014 Stock of the Second Company
|
|
|
Beta
|
0.95
|
|
10% increase
|
0.1
|
|
|
0.095
|
|
|
1.045
|
|
|
1.02225
|
|
New Stock Beta
|
2
|
The stock whose beta is greater than one will
have more standard deviation than the market (Wiedmann & Heckemüller, 2003).
Similarly, the stock whose beta is lesser than one will have a smaller standard
deviation than the market (2014). We are aware of the fact that the stock with
beta leser than 1 cannot move as efficiently as is the requirement of the
market. Furthermore, they are not
volatile and remain stable. The stock market return of 10 percent will increase
the risks which are associated with the stock gains for the firm. With the help
of Capital Asset Pricing Model (CAPM), we can easily
estimate the cost of equity capital which allows businesses to determine the
best way to raise funds while reducing the total cost of capital.
Part 2
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Monthly stock price of the first company
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|||
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Day
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Monthly stock price (closing)
|
(monthly stock price-average monthly price)
|
square of (monthly stock price-historical average
monthly price
|
|
1/1/2015
|
45.71
|
-4.22167
|
17.82247
|
|
2/1/2015
|
49.45
|
-0.48167
|
0.232003
|
|
3/1/2015
|
48.63
|
-1.3016
|
1.694163
|
|
4/1/2015
|
50.44
|
0.5084
|
0.258471
|
|
5/1/2015
|
49.44
|
-0.4916
|
0.241671
|
|
6/1/2015
|
46.61
|
-3.3216
|
11.03303
|
|
7/1/2015
|
46.79
|
-3.1416
|
9.869651
|
|
8/1/2015
|
46.01
|
-3.9216
|
15.37895
|
|
9/1/2015
|
43.51
|
-6.4216
|
41.23695
|
|
1/1/2016
|
49.97
|
0.0384
|
0.001475
|
|
2/1/2016
|
50.73
|
0.7984
|
0.637443
|
|
3/1/2016
|
54.08
|
4.1484
|
17.20922
|
|
4/1/2016
|
50.94
|
1.0084
|
1.016871
|
|
5/1/2016
|
50.9
|
0.9684
|
0.937799
|
|
6/1/2016
|
55.84
|
5.9084
|
34.90919
|
|
7/1/2016
|
55.41
|
5.4784
|
30.01287
|
|
8/1/2016
|
52.33
|
2.3984
|
5.752323
|
|
9/1/2016
|
51.98
|
2.0484
|
4.195943
|
|
Historical average monthly price = USING AVERAGE
FUNCTION IN ms EXCEL
|
49.93167
|
||
|
square root of sum of (monthly stock price-historical
average monthly price)
|
192.4405
|
||
|
Standard deviation
|
square root of sum of (monthly price-historical
average monthly price)
|
13.87229
|
|
|
Monthly stock price of the second company
|
|||
|
Day
|
Monthly stock price (closing)
|
(monthly stock price-average monthly price)
|
square of (monthly stock price-historial average
monthly price
|
|
1/1/2015
|
531.5946
|
-119.137
|
14193.63
|
|
2/1/2015
|
555.3439
|
-95.3877
|
9098.82
|
|
3/1/2015
|
545.0009
|
495.0693
|
245093.6
|
|
4/1/2015
|
537.34
|
487.4084
|
237566.9
|
|
5/1/2015
|
532.11
|
482.1784
|
232496
|
|
6/1/2015
|
520.51
|
470.5784
|
221444
|
|
7/1/2015
|
625.61
|
575.6784
|
331405.6
|
|
8/1/2015
|
637.61
|
587.6784
|
345365.9
|
|
9/1/2015
|
608.42
|
558.4884
|
311909.3
|
|
1/1/2016
|
742.95
|
693.0184
|
480274.5
|
|
2/1/2016
|
744.95
|
647.8384
|
419694.6
|
|
3/1/2016
|
697.77
|
643.0784
|
413549.8
|
|
4/1/2016
|
693.01
|
685.7884
|
470305.7
|
|
5/1/2016
|
735.72
|
642.1684
|
412380.3
|
|
6/1/2016
|
692.1
|
718.8584
|
516757.4
|
|
7/1/2016
|
768.79
|
717.1184
|
514258.8
|
|
8/1/2016
|
767.05
|
-116.318
|
13529.96
|
|
9/1/2016
|
777.29
|
727.3584
|
529050.2
|
|
Historical average monthly price = USING AVERAGE
FUNCTION IN ms EXCEL
|
650.7316
|
||
|
square root of sum of (monthly stock price-historical
average monthly price)
|
5718375
|
||
|
Standard deviation
|
square root of sum of (monthly price-historical
average monthly price)
|
2391.312
|
References
Mitra, D. A., & Khanna, M.
P. (2014). A Dynamic Spreadsheet Model for Determining the Portfolio Frontier
for BSE30 Stocks. Independent Journal of Management & Production, 5(1).
doi:10.14807/ijmp.v5i1.132
Wiedmann, K., &
Heckemüller, C. (2003). Corporate Finance Management — ein
Orientierungsrahmen. Ganzheitliches Corporate Finance Management, 3-42.
doi:10.1007/978-3-322-90656-4_1
Financial Management, 43(3). (2014). doi:10.1111/fima.2014.43.issue-3
