FIN 475 Spring 2014
Cases in Financial Management
Prepared For Dr. Haskins
By Kaylynn Burgess, Cody Jochim, and Richard Caldecott
February 20, 2014
1. The case gave a table that had the rate or return under certain conditions and from that we found the expected returns, standard deviations, and coefficients of variations for the assets. For the expected returns we took the probability and multiplied that by the rate of return for each type of economy, and then added them all up. To get standard deviation you must first calculate the variance. For that we took the rate of return minus expected return, squared that difference, multiplied that by the probability, and then summed them up. The get the standard deviation we…show more content… To get R2 we did a regression with the market and Outplace and then with the market and Games.
| Market | Games | Outplace | Standard Deviation | 12.12% | 8.32% | 3.54% | Beta | 1 | 1.75 | 1.5 | CC | | 0.6188 | -0.6345 | R2 | | 0.3829 | 0.4031 |
Beta measures the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. A beta of 1 indicates that the security's price will move with the market. A beta less than 1, means that the security’s price will be less volatile than the market. A beta greater than 1 indicates that the security's price will be more volatile than the market. R2 is a statistical measure that represents the percentage of a fund or security's movements that can be explained by movements in a benchmark index. In simple terms it is a goodness of fit line, and the values range from 0 to 1. A R2 of 1 means that all movements of a security are completely explained by movements in the index. A high R2 (between .85 and 1) indicates the fund's performance patterns have been in line with the index. A fund with a low R2 (.70 or less) doesn't act much like the index. Our R2s are low because the company does not act like the market in most of the past years. Sometimes the company’s return is positive when the market’s is negative and vice versa. 4. Managerial finance is just