Paper includes two parts:
Part 1 about evaluating beta and WACC, and Part 2 is about data
acquisition in preparation of the CLA2. You need to do both parts to demonstrate your comprehensive evaluation of company’s opportunity cost as well as your skills in retrieving and organizing historical data on securities for the purpose of portfolio formation.
1. Search Yahoo Finance, or any other credible source to retrieve the most recent income statement and balance sheet for a major leveraged corporation.
a. Provide these statements in proper format and include a screenshot of the data.
b. Retrieve the data on the companys historical data and calculate annual rate of
return by using adjusted closing prices for the past 20 years. using adjusted closing
values the past 20 years.
c. Using the data on the company’s stock rate of return and the indexs rate of return estimate beta of the corporation. Compare this value with the value stated by the source.
d. Retrieve the risk-free rate of return as the annual interest rate of US treasuries.
Based on these values estimate the expected annual rate of return of the corporations security. Compare your estimate with the expected rate of return as
evaluated based on your data in part b.
e. Using the financial statements mentioned above estimate the annual rate of interest paid by the corporation (cost of debt). Also, find the tax rate and capitalization ratio (proportions among equity and debt). Using these values that you have found estimate the annual weighted cost of capital (WACC) of the corporation.
2. This part of the assignment is in preparation for CLA2. Choose 5 major securities from different industries, among which one can be the one you chose in part 1 of the
question, Retrieve the data on the companies historical data and calculate annual rate of return for the past 20 years for each security. Provide your explanations and definitions in detail and be precise. Comment on your findings. Provide references for content when necessary. Provide your work in detail and explain in your
own words. Support your statements with six (8) peer-reviewed in-text citation(s) and
the basis of this paper is the CLA2 paper. the instructions for CLA2 paper is stated below (you don’t need to do this. this is just for clarification on what CLA2 is):
This is a complete written report of your portfolio formation in a Word file. Your historical data and relevant derived values in tables can be pasted from your previous calculations in the Excel file. Please provide explanations of all calculations and the justifications in the Word format. Also, make sure to paste all underlying Excel formulae that you used for calculations in the Word file.
1. Provide once again the data that you presented in answering part 2 of professional assignment 2.
2. Calculate the mean, variance, and the standard deviation of each securitys annual rate of return.
3. Calculate the correlation coefficient between every possible pair of securities annual rates of return.
4. Choose percentages of your initial investment that you want to allocate amongst the five (5) securities (weights in the portfolio). Create embedded formulae which generate statistical properties of the portfolio upon insertion of the weights. Observe the mean, the standard deviation, and the CV of the annual rate of return of the portfolio.
5. Find the combination of the weights that minimizes CV of the portfolio. How the CV of the optimal portfolio compares with the CVs of its constituents. What is the expected rate of return and standard deviation of the rate of return of the portfolio?
6. Choose different values within the range of the standard deviation of the portfolio, and for each chosen value locate the corresponding point on the efficient frontier by finding the weights that maximize the expected rate of return of the portfolio. Subsequently, construct the efficient frontier of your portfolio.
7. Assume that you initially invested $1,000,000 in the portfolio and that the distribution of the annual rate of return of the portfolio is normal. What is the distribution of the return of the portfolio 20 years after its formation? Provide the graph of the distribution of the return of portfolio.
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