FINANCE 301

DR. SHELDON NOVACK

CASE STUDY

ROTH FINANCIAL ADVISORS PART #1 INTRODUCTION Roth Financial, founded nearly 10 years ago, is a financial services firm which has a diverse base of clients. The founder of this start-up firm, Hugo Roth, developed a reputation for himself and also his associates by the way the financial firm conducts business. As the firm grew, so did the firm’s reputation for honesty and fair dealing. Hugo Roth established a reputation for training and helping his new associates establish themselves in the financial industry. Steve Johnson was a financial advisor in training for Roth Financial Advisors and was willing to take extra measures in order to learn more about financial services. His most
*…show more content…*

Beta is used in the capital asset pricing model (CAPM) which is a model that calculates the expected return of an asset based on its beta and expected market returns. Beta is calculated using regression analysis, and you can think of beta as the tendency of a security's returns to respond to swings in the market. A beta of 1 indicates that the security's price will move with the market and beta of less than 1 means that the security will be less volatile than the market. A beta of greater than 1 indicates that the security's price will be more volatile than the market. Stock A has a beta of 1.315, so theoretically stock A is 31.5% more volatile than the market. Stock B has a beta of -.557 which means the stocks are a commodity.

Beta is more useful when analyzing stocks that are to be placed in a portfolio. Beta is more useful because beta will calculate if a stock is a commodity, a defensive stock, or if the stock will move with the economy. If the beta is over 1.5 the stock is a high risk stock. From completing a simple beta equation a person can diversify their portfolio to include a mixture of commodities, stocks which move with the economy, and defensive stocks. So in case of hard economic times a person with a diversified portfolio will not lose all their investments because the economy tanked but instead have some stocks which will strive during a recession while other stocks are losing money. The main difference between beta and

Related

- Better Essays
## Ace Repair Essay

- 1593 Words
- 7 Pages

The historical beta comes from historical data. This kind of beta would slope coefficient in a regression, and associated with company's stock returns and market returns. This approach is conceptually straightforward, and complications quickly arise in practice.

- 1593 Words
- 7 Pages

Better Essays - Good Essays
## Wal Mart Stock Analysis Essay

- 2680 Words
- 11 Pages

Beta is the slope of the characteristic line. As shown in appendix1, we use the monthly historical data from April 2003 to April 2008 to graph SCL. We use S&P 500 as the market because it contains the stocks of 500 Large-Cap corporations and can reflect the market change broadly. As shown in exhibit 1, we can get the SCL: Ri-Rf = - 0.001 + 0.1649(Rm - Rf). So the beta is 0.1649 and the alpha (intercept) is -0.001. From the regression line, we find the R square is only 0.103. It reflects the degree that X variable explains Y variable is 10.3%. That is, Ri-Rf has no close relationship with Rm-Rf. In addition, due to the fact that beta is only 0.1649, it also provides the same result which Ri-Rf and Rm-Rf have no strong positive relationship. It is a good issue to consider why Wal-Mart stock return does not relate with S&P 500 return very well. From exhibit 2, we find the Wal-Mart price did not change very much while S&P 500 price went up. The major reasons may be that S&P 500 includes many high-tech stocks and those stocks performed very well during the period; therefore the volatility is greater than Wal-Mart. Moreover, maybe Wal-Mart has lower weight in S&P 500 so its trend of price change is different from S&P 500. From exhibit2, we also find Wal-Mart had good relationship with S&P 500 before 2004. To examine the situation, we use the data from 1998 to 2003 and find the SCL

- 2680 Words
- 11 Pages

Good Essays - Decent Essays
## Ameritrade Case

- 789 Words
- 4 Pages

The table below shows the equity betas for the firms presented in the case (using Jan-92 to Dec-96 equal weight NYSE/AMEX/NASDAQ as market portfolio):

- 789 Words
- 4 Pages

Decent Essays - Good Essays
## Essay Dimensional Fund Advisors Case

- 2374 Words
- 10 Pages

In the Fama & French paper, they found that: 1) stocks with high beta did not have consistently higher returns than low-beta stocks; 2)

- 2374 Words
- 10 Pages

Good Essays - Good Essays
## Mercury Athletic Footwear: Valuing the Opportunity

- 1055 Words
- 5 Pages

2. Beta for mercury is calculated by comparison with the companies having similar debt/equity ratio (25%). This beta is used in the calculation of cost of equity afterwards. The equity beta comes out to be 1.12.

- 1055 Words
- 5 Pages

Good Essays - Better Essays
## Essay about Heinz: Estimating the Cost of Capital

- 2330 Words
- 10 Pages

A common practice to determine the firm’s beta is to draw from historical data from published sources or compare numbers to competitors. In this case, Heinz can compare to Kraft, Campbell Soup and Del Monte and use professional judgement in determining the stock’s sensitivity to the market. A stock’s beta can be determined using a formula as well.

- 2330 Words
- 10 Pages

Better Essays - Good Essays
## Are The Four Components Of Marriott's Financial Strategy Consistent With Its Growth Objective?

- 1163 Words
- 5 Pages

For the calculation of equity, beta is a necessity because there is no comparison that matches its operational profile. Beta 1.17 ke = (4.58%+1.17) =

- 1163 Words
- 5 Pages

Good Essays - Decent Essays
## Applying The Two Step Testing Procedure For Asset Pricing Model

- 751 Words
- 4 Pages

For estimation of betas, the above equation was run for the period from Jan, 2003 to Dec, 2006. Based on the estimated betas we have divided the sample of 63 stocks into 10 portfolios each comprising of 6 stocks except portfolio no.1, 5 and 10 having seven stocks each. The first portfolio 1 has the 7 lowest beta stocks and the last portfolio 10 has the 7 highest beta stocks. The rationale for forming portfolios is to reduce measurement error in the betas.

- 751 Words
- 4 Pages

Decent Essays - Good Essays
## Essay on Finance 100 - Hydrotech Case Study

- 835 Words
- 4 Pages

Using CAPM: Risk Free Rate = 6%; Market Risk Premium = 5%; Beta = 1.2

- 835 Words
- 4 Pages

Good Essays - Decent Essays
## Marriott Case Study Essays

- 649 Words
- 3 Pages

To calculate beta, we took the beta of assets of the company as a while and set that equal to the percentage of equity for each division and multiplied by the beta of equity for each respective division.

- 649 Words
- 3 Pages

Decent Essays - Decent Essays
## Alex Sharpe's Portfolio Solution Essay

- 904 Words
- 4 Pages

The regression that we performed in excel for both stocks yielded a beta of .73576 for Reynolds, and a beta of 1.4198 for Hasbro. In question 2 we learned that although Reynolds stock was riskier independently, adding it to the portfolio made it more diversified compared to adding Hasbro, due to the fact that it was less correlated to the market portfolio. Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. Therefore, since the beta of Reynolds is lower than Hasbro, our beta calculations align with the fact that Reynolds stock makes the overall portfolio less risky. This finding is also intuitive when considering the nature of the companies; Reynolds is a Tobacco company meaning that is should be less sensitive to changes in market conditions than a toy company like Hasbro.

- 904 Words
- 4 Pages

Decent Essays - Satisfactory Essays
## Measuring Stock Market Risk Essay

- 691 Words
- 3 Pages

The betas (slope of estimated regression equation) for the individual stocks can be obtained from the regression

- 691 Words
- 3 Pages

Satisfactory Essays - Decent Essays
For beta, there are mainly two different ways to calculate the value for beta. The first is to calculate it yourself based on historical data. By using this method, you run the risk of using inaccurate data if you choose a period that is too broad or narrow. Conversely, the other way to determine it is to use published sources such as Bloomberg and Standard & Poor’s. Similar to using historical data to determine beta, there are variations in these published sources for the values of beta. As a result, the calculation of the overall cost of capital will vary depending on which source of beta you

- 1254 Words
- 6 Pages

Decent Essays - Decent Essays
## The Financial Detective

- 2092 Words
- 9 Pages

Beta: Companies in the same industries usually have different betas, one of the reasons this can happen is the kind of financing or debt equity ratio. The higher the debt equity ratio the higher the beta: this shows why company N has a higher beta compared to company M that has a lower debt equity ratio.

- 2092 Words
- 9 Pages

Decent Essays - Better Essays
## Ny Life Annuities

- 9169 Words
- 37 Pages

Blunt thought that NYL had a chance to sell a very large volume of immediate annuities through the roughly 500,000 independent and company-based investment advisors in the United States who helped people manage their retirement assets. To do this, he wanted to make a multimillion-dollar investment in people and resources to try to convince these investment advisors to sell NYL’s immediate annuities.

- 9169 Words
- 37 Pages

Better Essays