The table below provides the end-of-year share prices (in GB pence) for Centrica plc and National Express Group plc the end-of-year values for the FTSE 100 Index, which is a proxy for the market portfolio, M. YEAR Centrica plc National Express Group plc Market Portfolio, M 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 292.6 187.4 337.7 465.2 451.7 545.4 607.1 168.8 207.1 3940.4 4476.9 4814.3 5618.8 6220.8 6456.9 4434.2 5412.9 5899.9 5572.3 5897.8 224.7 151.5 199.5 205.8 235.5 327.6 293.0 256.1 268.1 317.8 291.6 243.6 216.1 206.5 290.9 2013 2014 2015 2016 2017 2018 2019 348.3 309.6 292.5 204.0 223.5 133.1 136.1 6749.1 6566.1 6242.3 7142.8 7687.8 6728.1 7542.4 254.9 301.9 337.8 366.2 393.9 Source: Yahoo Finance. Required: (a) Calculate the systematic risk (B² × o), the non-systematic risk (o) – (B² × o²) and the total risk (a) of the equity shares of Centrica and National Express Group. (b) Which company's returns are better explained by the market's returns? (c) Suppose the market is in equilibrium. Assuming the risk-free interest rate of 0.50 percent per annum, calculate the expected equilibrium risk-premium for each of the two shares. Comment on the results. You must show computations and workings and state assumptions you have made clearly and neatly.
The table below provides the end-of-year share prices (in GB pence) for Centrica plc and National Express Group plc the end-of-year values for the FTSE 100 Index, which is a proxy for the market portfolio, M. YEAR Centrica plc National Express Group plc Market Portfolio, M 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 292.6 187.4 337.7 465.2 451.7 545.4 607.1 168.8 207.1 3940.4 4476.9 4814.3 5618.8 6220.8 6456.9 4434.2 5412.9 5899.9 5572.3 5897.8 224.7 151.5 199.5 205.8 235.5 327.6 293.0 256.1 268.1 317.8 291.6 243.6 216.1 206.5 290.9 2013 2014 2015 2016 2017 2018 2019 348.3 309.6 292.5 204.0 223.5 133.1 136.1 6749.1 6566.1 6242.3 7142.8 7687.8 6728.1 7542.4 254.9 301.9 337.8 366.2 393.9 Source: Yahoo Finance. Required: (a) Calculate the systematic risk (B² × o), the non-systematic risk (o) – (B² × o²) and the total risk (a) of the equity shares of Centrica and National Express Group. (b) Which company's returns are better explained by the market's returns? (c) Suppose the market is in equilibrium. Assuming the risk-free interest rate of 0.50 percent per annum, calculate the expected equilibrium risk-premium for each of the two shares. Comment on the results. You must show computations and workings and state assumptions you have made clearly and neatly.
Fundamentals of Financial Management (MindTap Course List)
15th Edition
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Eugene F. Brigham, Joel F. Houston
Chapter8: Risk And Rates Of Return
Section: Chapter Questions
Problem 22SP
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Transcribed Image Text:Question 3
The table below provides the end-of-year share prices (in GB pence) for Centrica plc and
National Express Group plc the end-of-year values for the FTSE 100 Index, which is a proxy
for the market portfolio, M.
| YEAR
Centrica plc
National Express Group plc
Market Portfolio, M
2002
224.7
292.6
187.4
337.7
465.2
451.7
3940.4
151.5
199.5
2003
4476.9
2004
4814.3
2005
2006
205.8
5618.8
6220.8
6456.9
4434.2
235.5
2007
2008
327.6
293.0
256.1
268.1
545.4
607.1
2009
168.8
5412.9
207.1
243.6
216.1
5899.9
5572.3
5897.8
6749.1
2010
2011
2012
2013
317.8
291.6
348.3
309.6
292.5
204.0
223.5
133.1
206.5
2014
290.9
6566.1
6242.3
7142.8
7687.8
6728.1
7542.4
2015
2016
2017
254.9
301.9
337.8
2018
366.2
2019
136.1
393.9
Source: Yahoo Finance.
Required:
(a) Calculate the systematic risk (B2 x a, the non-systematic risk (o) – (B? x o2)
and the total risk (of) of the equity shares of Centrica and National Express
Group.
(b) Which company's returns are better explained by the market's returns?
(c) Suppose the market is in equilibrium. Assuming the risk-free interest rate of 0.50
percent per annum, calculate the expected equilibrium risk-premium for each of
the two shares. Comment on the results.
You must show computations and workings and state assumptions you have made
clearly and neatly.
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