New York University Monthly Rates of Return Worksheet

Description

You can download data for the following questions from financeyahoo.com

1. Look at the companies listed in Table 8.2. Calculate monthly rates of return for two siook at thearoperiods. Calculate betas for cach subperiod using the Excel SLOPE fmgive fivepye wascach company’s beta Suppose that you had used these betas to cscexpected rates of return from the CAPM. Would your estimates have changed signin.

from period to period?

2. Identify a sample of food companies. For example, you could try Campbell Soup (Cp

General Mills (GIS), Kellogg (k), Mondelez International (MDL Z), and Tyson Foods (iya. Estimate beta and R? for each company, using five years of monthly returns and Exoofunctions SLOPE and RSO.

b. Average the returns for each month to give the return on an equally weighted portfolio.

the stocks. Then calculate the industry beta using these portfolio returns. How does thR of this portfolio compare with the average R~ of the individual stocks?

c. Use the CAPM to calculate an average cost of equity (requity) for the food industry. Usecurrent interest rates–take a look at the end of Section 9-2–and a reasonable estimatof the market risk premium.

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