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Pages:
2 pages/≈550 words
Sources:
3 Sources
Level:
APA
Subject:
Visual & Performing Arts
Type:
Research Paper
Language:
English (U.S.)
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MS Word
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Topic:

Lexon Technologies (Research Paper Sample)

Instructions:
Assignment: Using Yahoo! Finance find the value of beta for your reference company. Write a two page paper discussing the following items: a. What is the estimated beta coefficient of your company? What does this beta mean in terms of your choice to include this company in your overall portfolio? b. Given the beta of your company, the present yield to maturity on U.S. government bonds maturing in one year (currently about 4.5% annually) and an assessment that the market risk premium (that is - the difference between the expected rate of return on the 'market portfolio' and the risk-free rate of interest) is 6.5%, use the CAPM equation in order to find out what is the present 'cost of equity' of your company? Explain what is the meaning of the 'cost of equity'. c. Choose two other companies, look up their "Beta" and report the names of these companies and their betas. Suppose you invest one third of your money in each of the stocks of these companies. What will the beta of the portfolio be? Given the data in (b), what will the Expected Rate of Return on this portfolio be? Do you feel that the three-stock portfolio is sufficiently diversified or does it still have risk that can be diversified away? Explain. Assignment Expectations: In a two-page report explain your answers thoroughly with references to the background materials. Make sure to demonstrate a strong understanding of the concept of beta and the risk/return trade off. source..
Content:
Lexon Technologies
Beta is a size of the reserve’s correspondence with the progress of the market. For one to get a complete expanded collection and reduce threats, a financier should choose stocks that match with, inversely matches with and or are free from the market. A beta of 1.0 defines the market. Stocks which appreciate (or depreciate) more than the circulation of the market possess >1. 0 stocks which go less than markets that posses betas < 1.0. Stocks that reversely correspond have unconstructive betas. A beta of Lexon Technologies which stands at .2156 implies that it progresses with the market though it is approximately 80% less unstable than it. This could be a nice option for stock which is autonomous in a healthy broadened docket (Beattie, 2010).
The CAPM (Capital Asset Pricing Model) is a way of pricing securities and ascertaining them, based on the money value, anticipated risks and expected returns regardless of whether a specific asset should anticipate to be fully rewarded both for the reason that by investing in specified security, one can be able to put his cash to work. And because of the risks associated with a particular security, one is able to demand higher profits. CAPM is calculated by using the pace of return on danger-free securities (bonds), the beta of the security in question and the market rate of return. The value that results is known as the cost of equity. The cost of equity refers to the profits shareholders in a security demand for putting their money in it (Kennon, 2010)
To get the cost of Equity, the Formula is;
Beta of proposed Security (Market Risk Premium) + Risk Free Rate of return
The Cost of Equity fo...
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