Financial and Economic Analysis

1836 Words Aug 1st, 2013 8 Pages
Financial and Economic Analysis (BMBA 9113)
Problem Set II (130 points)

Directions: Answer the following problems IN DETAIL. Your analysis must be typed and should be free of grammatical errors and “slang” terms.” Wherever appropriate, make sure you supplement your discussion with graphical analysis and equations. The graphs may be hand drawn, but please make sure they are neat. There are no restrictions or requirements on working in groups. The one exception is that each person must hand in his/her OWN work. In economic terms, there are no input restrictions; however, the output MUST be yours.

1. (15 points) The accommodative policies of the Federal Reserve System, the European Central Bank, and the Bank of Japan involve the
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9. (10 points) You are provided with the following monthly expected returns, each of which is represented by E(Ri), and betas for the following stocks. Please estimate the capital asset pricing model and draw conclusions about the significance and realism of the results. (Note: Please use conventional tests of the R-squared and coefficients.) On the basis of your results, please name at least three of the stocks that you would recommend as “buys.”

E(Ri) Beta
|AA |0.8 |1.3 |
|AXP |0.8 |1 |
|BA |1 |0.80 |
|C |0.8 |1.35 |
|CAT |1.2 |1.7 |
|CSCO |0.6 |0.95 |
|KO |0.4 |0.6 |
|DIS |0.6 | |
|DD |0.6 |0.7 |
|ED |0.4 |0.55 |
|XOM | |0.6 |
|GE |0.5 |0.9 |
|GM |0.6 |0.8 |
|HPQ |0.4 |1.3 |
|HD |0.4 |0.9 |
|HON |0.9 |1.15 |
|INTC |0.8 |1.1 |
|IBM | |1.4 |
|IP |0.4 |0.80 |
|JNJ |0.3 |0.35 |
|MCD |0.6 |0.5 |
|MSFT |0.8 |1.2 |
|MMM |0.5 |0.9 |
|JPM

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