Ameritrade Case Solution

201-046

Cost of Capital at Ameritrad

Exhibit 1 Consolidated Annual Income Statements for the Fiscal Year Ending in September Net Revenues Transaction Income Net Interest Other Total Net Revenues

$

1997

1996

51,936,902.00 $ 18,193,946 7,107,492 77,238,340

36,469,561.00 11,477,878 6,391,314 54,338,753

Expenses Excluding Interest Employee Compensation Commissions and Clearance Communications Occupancy and Equipment Cost Advertising and Promotion Provision for Losses Amortization of Goodwill Other Total Expenses Excluding Interest

19,290,808 3,320,262 5,623,468 5,422,839 13,970,834 59,000 363,002 7,763,014 55,813,227

14,049,642 2,530,642 3,685,535 2,889,654 7,537,265 148,014 363,002 4,717,406 35,921,160

Income Before Income Taxes

21,425,113

18,417,593

7,602,964

7,259,248

13,822,149 $

11,158,345

Taxes Net Income EPS Shares Outstanding Source: Ameritrade Annual Report, 1997.

$

$1.00

$0.87

13,768,889

12,813,823

Cost of Capital at Ameritrade

1995 $

23,977,481.00 8,434,584 2,607,538 35,019,603

8,481,977 2,516,796 2,352,590 1,626,725 4,842,392 1,428,663 94,152 2,846,280 24,189,575 10,830,028 3,798,881 $

7,031,147 $0.55 12,813,823

Cost of Capital at Ameritrade

201-046

Exhibit 2 Consolidated Annual Balance Sheets for the Fiscal Year Ending in September 1997

1996

$

53,522,447.00 $ 319,763,921 17,823,640 325,407,147 8,709,923 6,346,763 7,597,972 5,000,000 39,314 13,145,616

15,767,170.00 175,668,497 15,096,862 166,075,055 3,746,178 6,709,765 7,157,783 5,000,000 444,378 6,013,544

$

757,356,743 $

401,679,232

LIABILITIES & STOCKHOLDERS EQUITY Liabilities: Payable to Brokers, Dealers, & Clearing Organizations Payable to Customers & Correspondents Accounts Payable and Accrued Liabilities Notes Payable to Bank Income Taxes Payable

1,404,999 666,279,440 19,252,931 3,430,279

1,193,479 356,942,970 7,221,008 4,853,000 806,711

Total Liabilities

690,367,649

371,017,168

Stockholder’s Equity: Class A Common Stock Class B Common Stock Additional Paid in Capital Retained Earnings

131,534 13,644 23,297,506 43,546,410

114,494 13,644 809,665 29,724,261

Total Stockholder’s Equity

66,989,094

30,662,064

757,356,743 $

401,679,232

ASSETS Cash & Gash Equivalents Cash & Investments Segregated in Compliance with Federal Regulations Receivable from Brokers, Dealers, & Clearing Organizations Receivable from Customers & Correspondents Furniture, Equipment, & Leasehold Improvements Goodwill Equity Investments Other Investments Deferred Income Taxes Other Assets Total Assets

Total Liabilities & Stockholders Equity

Source: Ameritrade Annual Report, 1997.

$

201-046

Cost of Capital at Am

Exhibit 3 Capital Market Return Data (Historical and Current) Prevailing Yields on US Government Securities (August 31, 1997) Annualized Yield to Maturity 3-Month T-BiIls 1-Year Bonds 5-Year Bonds 10-Year Bonds 20-Year Bonds 30-Year Bonds

5.24% 5.59% 6.22% 6.34% 6.69% 6.61%

Historic Average Total Annual Returns on US Government Securities and Common Stocks (1950 -1996) Average Annual Return Standard Deviation T-Bills 5.2% 3.0% Intermediate Bonds a 6.4% 6.6% Long Term Bonds b 6.0% 10.8% Large Company Stocks c 14.0% 16.8% Small Company Stocks d 17.8% 25.6%

Historic Average Total Annual Returns on US Government Securities and Common Stocks (1929 - 1996) Average Annual Return Standard Deviation T-Bills 3.8% 3.3% Intermediate Bonds a 5.4% 5.8% Long Term Bonds b 5.5% 9.2% Large Company Stocks c 12.7% 20.3% Small Company Stocks d 17.7% 34.1%

Source: Yields are from Datastream, historical data are from lbbotson Associates, SBBI 2000 Yearbook. a Portfolio of US Government bonds with maturity near 5 years. b Portfolio of US Government bonds with maturity near 20 years. c Standard and Poor’s 500 Stock Price Index. d A subset of small cap stocks traded on the NYSE (1926-1981); Dimensional Fund Advisor’s Small Company Fund (1982-1997).

Cost of Capital at Ameritrade

dard Deviation

dard Deviation

Exhibit 4 Selected Data for Comparable Firms Firm Name (Industry) A G Edwards (Investment Services) a Bear Stearns (Investment Services) Charles Schwab Corp (Discount Brokerage) E*Trade (Discount Brokerage) Lehman Brothers (Investment Services) Mecklermedia (Internet) Merrill Lynch & Co (Investment Services) Morgan Stanley Dean Witter (Investment Services) Netscape (Internet) Paine Webber (Investment Service) Quick & Reilly Group (Discount Brokerage) Raymond James Financial (Investment Services) Waterhouse Investor Srvcs (Discount Brokerage) Yahoo (Internet)

Debt/Value (Market Values) Current Avg 1992-1996 0.00 0.60 0.05 0.00 0.79 0.00 0.57 0.57 0.00 0.51 0.00 0.05 NA 0.00

Source: Compustat; Standard & Poor’s; company public filings a lnvestment Services includes brokerage, asset management, investment banking, and trading. b Indicates average over 1993-1996. c indicates average over 1992-1995

0.00 0.50 0.08 NA NA 0.00 b 0.52 0.53 NA 0.53 0.00 0.04 0.38 NA

Debt/Value (Book Values) Current Avg 1992-1996 0.00 0.69 0.25 0.00 0.80 0.00 0.77 0.70 0.00 0.63 0.00 0.07 NA 0.00

0.00 0.60 0.30 NA 0.79 b 0.00 b 0.65 0.63 NA 0.58 0.00 0.06 0.70 c NA

201-046

-7-

Brokerage Revenues (%) 57 35 82 95 13 0 37 12 0 46 81 51 99 0

These companies are similar to Ameritrade

201-046

Exhibit 5

Cost of Capital at Ameritrade

Stock Price Data for Discount Brokers

Date 31-Mar-97 30-Apr-97 30-May-97 30-Jun-97 31-Jul-97 29-Aug-97

Date 30-Sep-87 30-Oct-87 30-Nov-87 31-Dec-87 29-Jan-88 29-Feb-88 31 -Mar-88 29-Apr-88 31-May-88 30-Jun-88 29-Jul-88 31-Aug-88 30-Sep-88 31-Oct-88 30-Nov-88 30-Dec-88 29-Jan-89 29-Feb-89 32 -Mar-88 29-Apr-89 31-May-89 30-Jun-89 29-Jul-89 31-Aug-89 30-Sep-89 31-Oct-89 30-Nov-89

Shares 13,153 13,153 13,153 14,518 14,518 14,518

Shares 29,121 29,121 29,121 25,388 25,388 25,388 25,388 25,388 25,388 25,294 25,294 25,294 25,328 25,328 25,328 25,354 25,354 25,354 25,354 25,354 25,354 25,352 25,352 25,352 25,386 25,386 25,386

Ameritrade Price Dividend

Stock Split

15.625 12.500 14.000 15.750 15.375 18.813

Charles Schwab Price Dividend 15.875 7.875 6.625 6.000 6.500 9.000 7.375 7.625 6.875 7.250 7.500 6.750 6.750 7.500 6.750 6.750 10.250 8.625 8.875 10.125 11.750 0.030 11.000 16.500 0.030 15.750 14.000 13.000 0.030 12.500

-0.200 0.120 0.125 -0.024 0.224

Stock Split -0.504 -0.159 -0.094 0.083 0.385 -0.181 0.034 -0.098 0.055 0.034 -0.100 0.000 0.111 -0.100 0.000 0.519 -0.159 0.029 0.1408 0.1635 -0.0638 0.5027 -0.0455 -0.1111 -0.0693 -0.0385

30-Dec-89 29-Jan-90 29-Feb-90 33 -Mar-88 29-Apr-90 31-May-90 30-Jun-90 29-Jul-90 31-Aug-90 30-Sep-90 31-Oct-90 30-Nov-90 30-Dec-90 29-Jan-91 29-Feb-91 34 -Mar-88 29-Apr-91 31-May-91 30-Jun-91 29-Jul-91 31-Aug-91 30-Sep-91 31-Oct-91 30-Nov-91 30-Dec-91 29-Jan-92 29-Feb-92 35 -Mar-88 29-Apr-92 31-May-92 30-Jun-92 29-Jul-92 31-Aug-92 30-Sep-92 31-Oct-92 30-Nov-92 30-Dec-92 29-Jan-93 29-Feb-93 36 -Mar-88 29-Apr-93 31-May-93 30-Jun-93 29-Jul-93 31-Aug-93 30-Sep-93 31-Oct-93 30-Nov-93 30-Dec-93 29-Jan-94

25,332 25,332 25,332 25,332 25,332 25,332 25,099 25,099 25,099 25,255 25,255 25,255 24,464 24,464 24,464 24,464 24,464 24,464 24,435 24,435 24,435 25,596 25,596 25,596 38,394 38,394 38,394 38,479 38,479 38,479 38,626 38,626 38,626 38,149 38,149 38,149 37,741 37,741 37,741 37,741 37,741 37,741 56,612 56,612 56,612 57,625 57,625 57,815 57,815 57,815

13.875 13.500 15.250 17.000 15.125 15.750 15.250 13.625 12.625 11.375 12.625 11.875 11.375 16.000 18.250 20.250 18.125 22.500 24.750 27.500 28.375 31.125 37.750 32.750 30.375 31.875 33.250 34.625 28.500 28.875 23.500 24.625 22.500 18.000 20.250 24.875 26.125 30.250 32.375 36.500 32.750 35.250 28.500 29.000 32.875 34.500 34.625 31.875 32.375 29.500

0.030

0.030

0.030

0.040

0.040

0.040

0.050

0.060 3 for 2 0.040

0.060

0.060

0.060

0.060

0.075 3 for 2 0.050

0.050

0.070

0.1100 -0.0249 0.1296 0.1148 -0.1085 0.0413 -0.0317 -0.1046 -0.0734 -0.0990 0.1134 -0.0594 -0.0421 0.4101 0.1406 0.1096 -0.103 0.241 0.100 0.113 0.032 0.097 0.215 -0.132 0.391 0.051 0.043 0.041 -0.175 0.013 -0.186 0.050 -0.086 -0.200 0.128 0.228 0.050 0.160 0.070 0.127 -0.101 0.076 0.213 0.019 0.134 0.049 0.005 -0.079 0.016 -0.087

3

3

29-Feb-94 37 -Mar-88 29-Apr-94 31-May-94 30-Jun-94 29-Jul-94 31-Aug-94 30-Sep-94 31-Oct-94 30-Nov-94 30-Dec-94 29-Jan-95 29-Feb-95 38 -Mar-88 29-Apr-95 31-May-95 30-Jun-95 29-Jul-95 31-Aug-95 30-Sep-95 31-Oct-95 30-Nov-95 30-Dec-95 29-Jan-96 29-Feb-96 39 -Mar-88 29-Apr-96 31-May-96 30-Jun-96 29-Jul-96 31-Aug-96 30-Sep-96 31-Oct-96 30-Nov-96 30-Dec-96 29-Jan-97 29-Feb-97 40 -Mar-88 29-Apr-97 31-May-97 30-Jun-97 29-Jul-97 31-Aug-97

57,815 57,815 57,815 57,815 57,114 57,114 57,114 56,829 56,829 57,325 57,325 57,325 57,325 85,988 85,988 85,988 85,896 85,896 87,061 174,122 174,122 174,678 174,678 174,678 174,678 174,678 174,032 174,032 174,989 174,989 174,989 175,166 175,166 175,166 175,173 175,173 175,173 175,173 175,068 175,068 175,813 176,422 176,422

27.500 26.875 28.375 30.250 24.750 26.750 30.750 29.625 35.375 31.875 34.875 40.000 44.375 32.250 34.250 35.000 43.875 46.125 46.625 29.000 22.875 24.250 20.125 25.125 25.500 25.875 24.500 24.250 24.500 24.125 25.000 23.000 25.000 30.250 32.000 37.500 37.500 32.000 36.625 40.625 40.500 47.000 42.750

0.070

0.070

0.070

0.090 3 for 2 0.060

0.080 2 for 1 0.040

0.040

0.040

0.050

0.050

0.050

0.050

0.050

-0.068 -0.023 0.058 0.066 -0.182 0.084 0.150 -0.037 0.196 -0.099 0.094 0.150 0.109 0.090 0.064 0.022 0.254 0.053 0.011 0.244 -0.210 0.060 -0.170 0.250 0.015 0.015 -0.052 -0.010 0.010 -0.013 0.036 -0.080 0.089 0.210 0.058 0.172 0.001 -0.147 0.145 0.111 -0.003 0.160 -0.089

3

2

Jan 92-Dec 96 0.036 0.03345 0.148 0.11513

Date

Shares

E*Trade Price

Dividend

Stock Split

30-Aug-96 30-Sep-96 31-Oct-96 29-Nov-96 31-Dec-96 31-Jan-97 28-Feb-97 31-Mar-97 30-Apr-97 30-May-97 30-Jun-97 31-Jul-97 29-Aug-97

Date 31-Jan-84 29-Feb-84 30-Mar-84 30-Apr-84 31-May-84 29-Jun-84 31-Jul-84 31-Aug-84 28-Sep-84 31-Oct-84 30-Nov-84 31-Dec-84 31-Jan-85 29-Feb-85 30-Mar-85 30-Apr-85 31-May-85 29-Jun-85 31-Jul-85 31-Aug-85 28-Sep-85 31-Oct-85 30-Nov-85 31-Dec-85 31-Jan-86 29-Feb-86 30-Mar-86 30-Apr-86 31-May-86 29-Jun-86

29,393 29,539 29,539 29,539 29,545 29,545 29,545 30,440 30,440 30,440 30,958 30,958 30,958

Shares

10.500 13.188 11.125 10.938 11.500 17.625 24.000 18.000 15.000 17.625 19.625 30.500 32.125

0.256 -0.156 -0.017 0.051 0.533 0.362 -0.250 -0.167 0.175 0.113 0.554 0.053

Quick & Reilly Price Dividend

6,318 6,318 6,318 6,318 6,318 6,318 6,318 6,318 6,318 6,318 6,318 6,318 6,318 6,318 6,318 6,318 6,318 6,318 6,318 6,318 6,318 6,318 6,318 6,318 6,318 6,318 6,318 6,318 11,149 11,149

17.625 15.000 14.875 17.125 17.375 18.000 14.750 18.000 17.000 17.875 15.250 15.500 23.375 23.750 23.125 20.625 22.625 24.000 24.125 22.875 20.125 22.250 25.500 32.500 36.375 39.125 39.000 30.375 33.375 35.500

0.050

0.050 0.050

0.050

0.110

0.060

0.060

0.060

0.170

0.070

Stock Split

-0.146 -0.008 0.151 0.015 0.039 -0.181 0.224 -0.056 0.051 -0.144 0.016 0.508 0.021 -0.026 -0.108 0.100 0.061 0.005 -0.049 -0.120 0.106 0.149 0.275 0.119 0.080 -0.003 -0.221 0.101 0.064

31-Jul-86 31-Aug-86 28-Sep-86 31-Oct-86 30-Nov-86 31-Dec-86 31-Jan-87 29-Feb-87 30-Mar-87 30-Apr-87 31-May-87 29-Jun-87 31-Jul-87 31-Aug-87 28-Sep-87 31-Oct-87 30-Nov-87 31-Dec-87 31-Jan-88 29-Feb-88 30-Mar-88 30-Apr-88 31-May-88 29-Jun-88 31-Jul-88 31-Aug-88 28-Sep-88 31-Oct-88 30-Nov-88 31-Dec-88 31-Jan-89 29-Feb-89 30-Mar-89 30-Apr-89 31-May-89 29-Jun-89 31-Jul-89 31-Aug-89 28-Sep-89 31-Oct-89 30-Nov-89 31-Dec-89 31-Jan-90 29-Feb-90 30-Mar-90 30-Apr-90 31-May-90 29-Jun-90 31-Jul-90 31-Aug-90

11,149 11,149 11,149 11,149 11,149 11,149 11,149 11,149 11,149 16,724 16,724 9,477 9,477 9,477 9,477 9,477 9,477 9,477 9,477 9,477 9,452 9,452 9,452 9,452 9,452 9,452 9,452 9,452 9,452 9,452 9,452 9,452 9,452 9,452 9,452 9,452 9,452 9,452 9,452 9,452 9,452 9,452 9,452 9,452 9,452 9,452 9,452 9,452 9,452 9,452

29.000 28.750 23.875 32.125 29.500 26.750 36.125 36.875 36.000 21.375 21.500 19.250 20.250 24.625 23.000 12.125 11.625 12.500 12.625 13.500 12.250 12.625 11.500 11.875 11.500 11.250 11.750 11.750 11.500 10.875 15.000 13.750 13.250 13.000 16.125 14.000 16.500 17.000 16.750 15.750 14.875 13.625 12.000 13.625 13.250 13.000 15.250 14.000 13.500 11.375

0.070

0.070

0.200 3 for 2 0.055

0.055

0.055

0.180

0.060

0.060

0.060

0.060

0.060

0.060

0.060

0.130

0.070

0.070

-0.183 -0.006 -0.170 0.346 -0.080 -0.093 0.350 0.026 -0.024 x -0.109 0.008 -0.105 0.052 0.219 -0.066 -0.473 -0.037 0.075 0.010 0.084 -0.093 0.031 -0.084 0.033 -0.032 -0.017 0.044 0.000 -0.016 -0.054 0.379 -0.079 -0.036 -0.019 0.245 -0.132 0.179 0.034 -0.015 -0.060 -0.052 -0.084 -0.119 0.146 -0.028 -0.019 0.178 -0.082 -0.036 -0.152

3

28-Sep-90 31-Oct-90 30-Nov-90 31-Dec-90 31-Jan-91 29-Feb-91 30-Mar-91 30-Apr-91 31-May-91 29-Jun-91 31-Jul-91 31-Aug-91 28-Sep-91 31-Oct-91 30-Nov-91 31-Dec-91 31-Jan-92 29-Feb-92 30-Mar-92 30-Apr-92 31-May-92 29-Jun-92 31-Jul-92 31-Aug-92 28-Sep-92 31-Oct-92 30-Nov-92 31-Dec-92 31-Jan-93 29-Feb-93 30-Mar-93 30-Apr-93 31-May-93 29-Jun-93 31-Jul-93 31-Aug-93 28-Sep-93 31-Oct-93 30-Nov-93 31-Dec-93 31-Jan-94 29-Feb-94 30-Mar-94 30-Apr-94 31-May-94 29-Jun-94 31-Jul-94 31-Aug-94 28-Sep-94 31-Oct-94

9,452 9,452 9,452 9,437 9,437 9,437 9,210 9,210 9,210 9,452 9,452 9,452 9,210 9,210 9,210 9,220 9,220 9,220 9,292 9,292 9,292 9,292 9,292 9,292 9,884 9,884 9,884 9,884 9,884 9,884 9,824 9,824 9,824 10,315 10,623 10,623 10,643 10,643 10,678 11,212 10,678 11,238 11,238 11,238 11,238 11,168 11,168 11,121 11,121 11,111

10.375 9.750 10.125 10.250 13.125 16.125 18.875 17.500 17.750 17.000 19.625 20.625 19.250 20.375 20.000 27.750 27.500 28.500 28.625 21.500 21.500 21.000 20.125 19.625 20.125 21.000 25.375 24.750 27.000 26.000 27.125 25.125 26.125 28.875 30.750 35.000 36.250 35.875 34.250 35.750 35.375 28.375 25.625 26.375 26.875 25.375 24.750 29.250 25.875 25.750

0.070

0.070

0.070

0.070

0.070

0.180

0.080

0.080

0.080

0.220

0.100 1.443 0.100

0.100 1.788 0.270

0.120

0.120

-0.088 -0.060 0.046 0.012 0.280 0.234 0.171 -0.073 0.018 -0.042 0.154 0.055 -0.067 0.058 -0.015 0.388 -0.009 0.043 0.004 -0.249 0.004 -0.023 -0.042 -0.021 0.025 0.043 0.212 -0.025 0.091 -0.029 0.043 -0.074 0.044 0.160 0.065 0.141 0.036 -0.010 -0.043 0.096 -0.010 -0.190 -0.097 0.029 0.024 -0.056 -0.025 0.187 -0.115 -0.005

30-Nov-94 31-Dec-94 31-Jan-95 29-Feb-95 30-Mar-95 30-Apr-95 31-May-95 29-Jun-95 31-Jul-95 31-Aug-95 28-Sep-95 31-Oct-95 30-Nov-95 31-Dec-95 31-Jan-96 29-Feb-96 30-Mar-96 30-Apr-96 31-May-96 29-Jun-96 31-Jul-96 31-Aug-96 28-Sep-96 31-Oct-96 30-Nov-96 31-Dec-96 31-Jan-97 29-Feb-97 30-Mar-97 30-Apr-97 31-May-97 29-Jun-97 31-Jul-97 31-Aug-97

Date 29-May-87 30-Jun-87 31-Jul-87 31-Aug-87 30-Sep-87 30-Oct-87 30-Nov-87 31-Dec-87 29-Jan-88 29-Feb-88

11,111 11,111 11,075 11,075 11,075 11,075 11,075 16,613 16,613 16,613 16,613 24,920 24,952 24,952 25,056 25,056 25,056 25,056 25,056 25,056 25,178 25,178 25,178 25,178 25,178 25,178 25,173 25,173 37,760 37,760 37,760 38,606 38,664 38,664

24.750 28.375 30.875 35.000 35.500 40.625 47.000 36.625 38.500 37.375 45.875 23.750 25.375 20.500 23.250 26.250 29.500 30.500 33.875 32.500 28.375 29.250 26.500 26.250 28.375 29.875 36.625 35.000 20.875 22.125 23.000 23.250 26.250 34.250

0.120

0.290

0.150

3for2

0.100 3 for 2 0.070

0.080

0.070

0.080

0.080

0.190 3 for 2 0.060

0.060

Waterhouse Investor Services Shares Price Dividend 2,572 6.938 2,572 8.000 2,572 8.250 2,572 7.500 2,572 8.000 2,572 6.250 2,572 6.000 2,572 5.250 2,572 4.500 2,482 4.750

-0.034 0.146 0.088 0.143 0.014 0.144 0.157 0.174 0.051 -0.027 0.227 -0.223 0.071 -0.192 0.134 0.132 0.124 0.034 0.113 -0.041 -0.127 0.034 -0.094 -0.009 0.084 0.053 0.226 -0.039 -0.105 0.060 0.042 0.011 0.129 0.307

Stock Split 0.153 0.031 -0.091 0.067 -0.219 -0.040 -0.125 -0.143 0.056

3

3

3

31-Mar-88 29-Apr-88 31-May-88 30-Jun-88 29-Jul-88 31-Aug-88 30-Sep-88 31-Oct-88 30-Nov-88 30-Dec-88 31-Jan-89 28-Feb-89 31 -Mar-89 28-Apr-89 31-May-89 30-Jun-89 31 -Jul-89 31-Aug-89 29-Sep-89 31-Oct-89 30-Nov-89 29-Dec-89 31-Jan-90 28-Feb-90 30-Mar-90 30-Apr-90 31-May-90 29-Jun-90 31-Jul-90 31-Aug-90 28-Sep-90 31-Oct-90 30-Nov-90 31-Dec-90 31 -Jan-91 28-Feb-91 28-Mar-91 30-Apr-91 31-May-91 28-Jun-91 31-Jul-91 30-Aug-91 30-Sep-91 31-Oct-91 29-Nov-91 31 -Dec-91 31 -Jan-92 28-Feb-92 31-Mar-92 30-Apr-92

2,482 2,482 2,482 2,482 2,482 2,482 2,482 2,482 2,482 2,482 2,482 2,472 2,472 2,472 2,420 2,420 2,420 2,419 2,419 2,419 2,417 2,417 2,417 2,420 2,420 2,420 2,572 2,572 2,572 2,377 2,377 2,377 2,370 2,370 2,370 2,320 2,320 2,320 2,320 2,900 2,900 2,943 2,943 2,943 2,943 2,943 2,943 4,415 4,466 4,466

6.000 5.875 6.250 5.000 3.500 3.250 4.000 3.375 3.500 2.750 3.750 3.750 4.750 4.250 5.000 6.000 6.000 5.750 5.625 5.375 5.000 4.500 4.375 3.750 4.250 4.375 4.250 4.750 4.625 4.375 4.250 4.000 3.750 3.625 3.750 4.500 6.125 7.000 8.250 8.000 10.375 10.750 14.250 14.000 15.500 27.500 26.500 21.750 25.375 20.625

0.120

0.150

5 for 4 0.160

3 for 2

0.263 -0.021 0.064 -0.200 -0.300 -0.071 0.231 -0.156 0.037 -0.214 0.364 0.000 0.267 -0.105 0.176 0.200 0.000 -0.022 -0.022 -0.044 -0.070 -0.100 -0.028 -0.143 0.133 0.029 -0.029 0.118 -0.026 -0.022 -0.029 -0.059 -0.063 -0.033 0.034 0.200 0.361 0.143 0.179 0.212 0.297 0.052 0.326 -0.018 0.107 0.774 -0.036 0.231 0.167 -0.187

5

3

29-May-92 30-Jun-92 31 -Jul-92 31-Aug-92 30-Sep-92 30-Oct-92 30-Nov-92 31-Dec-92 29-Jan-93 26-Feb-93 31-Mar-93 30-Apr-93 28-May-93 30-Jun-93 30-Jul-93 31 -Aug-93 30-Sep-93 29-Oct-93 30-Nov-93 31-Dec-93 31-Jan-94 28-Feb-94 31-Mar-94 29-Apr-94 31-May-94 30-Jun-94 29-Jul-94 31-Aug-94 30-Sep-94 31-Oct-94 30-Nov-94 30-Dec-94 31-Jan-95 28-Feb-95 31-Mar-95 28-Apr-95 31-May-95 30-Jun-95 31-Jul-95 31-Aug-95 29-Sep-95 31-Oct-95 30-Nov-95 29- Dec-95 31-Jan-96 29- Feb-96 29-Mar-96 30-Apr-96 31-May-96 28-Jun-96

4,466 4,466 4,466 4,466 4,847 4,847 4,847 4,847 4,847 4,847 6,071 6,071 6,071 6,072 6,072 6,072 6,072 6,072 9,108 9,150 9,150 9,150 9,150 9,150 9,150 9,150 9,150 9,150 9,150 9,150 9,150 9,154 9,154 9,154 9,154 9,154 9.154 9,154 9,154 9,154 11,442 11,442 11,442 11,452 11,452 11,452 11,452 11,452 11,458 11,458

21.750 17.125 17.625 13.750 14.375 15.625 20.750 20.500 25.250 24.375 20.500 18.500 27.250 33.500 33.000 42.625 50.125 47.250 25.750 21.250 21.250 20.500 17.625 16.000 15.250 13.375 13.000 17.000 14.125 16.125 14.250 12.250 14.500 17.375 16.125 16.125 17.500 23.000 27.625 28.625 25.500 19.750 19.750 24.750 23.625 24.625 33.375 36.250 36.625 37.125

0.200

5 for 4

0.250

3 for 2

0.200

0.250 5 for 4

0.055 -0.213 0.029 -0.209 0.045 0.087 0.328 -0.012 0.232 -0.035 0.051 -0.098 0.473 0.229 -0.015 0.299 0.176 -0.057 -0.183 -0.175 0.000 -0.035 -0.140 -0.092 -0.047 -0.123 -0.028 0.323 -0.169 0.142 -0.116 -0.140 0.184 0.198 -0.072 0.000 0.085 0.314 0.201 0.045 0.114 -0.225 0.000 0.253 -0.045 0.042 0.355 0.086 0.010 0.014

5

3

5

31-Jul-96 30-Aug-96 30-Sep-96

11,501 11,501 11,501

37.625 37.375 37.875

0.220

Source: Center for Research on Security Prices, University of Chicago.

0.013 -0.001 0.013

t of Capital at Ameritrade

Split adjustment 2

2

an 92-Dec 96

2

1

y 2

2

2

2

4

2

4

2

4

Exhibit 6

Date

31-Jan-84 29-Feb-84 30-Mar-84 30-Apr-84 31-May-84 29-Jun-84 31-Jul-84 31-Aug-84 28-Sep-84 31-Oct-84 30-Nov-84 31-Dec-84 31-Jan-85 28-Feb-85 29-Mar-85 30-Apr-85 31-May-85 28-Jun-85 31-Jul-85 30-Aug-85 30-Sep-85 31-Oct-85 29-Nov-85 31-Dec-85 31-Jan-86 28-Feb-86 31-Mar-86 30-Apr-86 30-May-86 30-Jun-86 31-Jul-86 29-Aug-86 30-Sep-86 31-Oct-86 28-Nov-86 31-Dec-86 30-Jan-87 27-Feb-87 31-Mar-87 30-Apr-87 29-May-87 30-Jun-87 31-Jul-87 31-Aug-87 30-Sep-87 30-Oct-87 30-Nov-87 31-Dec-87 29-Jan-88 29-Feb-88 31-Mar-88 29-Apr-88 31-May-88 30-Jun-88

Stock Return Data for Investment Service Firms, Internet Firms, and the Aggregate Stock Market

A G Edwards

0.026040 -0.111680 -0.042290 0.012050 -0.017860 0.100610 0.016670 0.178140 -0.032710 0.024150 -0.066040 -0.017170 0.331610 -0.007780 -0.036860 -0.094260 0.085970 0.102500 -0.064640 -0.036590 -0.132490 0.088240 0.099100 0.141800 0.039710 0.149310 0.083990 -0.086830 0.026070 -0.066370 -0.067630 0.104660 -0.094340 0.151040 -0.022620 -0.040740 0.334950 0.000000 0.044950 -0.122380 -0.023900 -0.104650 0.073390 0.027180 -0.071130 -0.337840 -0.174420 0.033330 0.080650 0.062390 -0.035460 0.029410 -0.042860 0.159400

Bear Stearns

-0.103450 0.193590 0.156760 0.130840 0.128720 0.065640 0.003620 -0.168520 -0.141920 0.160310 -0.145530 0.217050 -0.057320 -0.102160 0.318180 -0.022990 -0.024650 -0.121020 -0.028990 0.022090 -0.007350 0.103700 0.080270 -0.400000 -0.145830 0.023900 0.144580 0.157890 -0.054550 0.019420 -0.085710 0.093750

Lehman Bros

Mecklermedia

Merrill Lynch

-0.013280 -0.167330 -0.019140 -0.011710 -0.044780 0.119790 -0.076280 0.304570 -0.077820 0.023630 -0.091290 -0.013700 0.277780 -0.023190 -0.085820 -0.034290 0.089360 0.011720 0.040930 -0.052240 -0.141730 0.100920 0.127500 0.022300 0.152730 0.036590 0.012230 -0.102720 -0.008080 -0.054610 -0.039710 0.145110 -0.052810 0.195120 -0.074050 -0.075950 0.198630 -0.015430 -0.002920 -0.152050 -0.041380 0.010870 0.100360 0.032570 -0.031750 -0.357380 -0.153060 0.091460 0.072630 0.062500 -0.064360 0.000000 0.031750 0.113990

Morgan Stanley Dean Witter

0.051150 0.013420 -0.062910 -0.070670 0.149050 -0.119400 0.160830 -0.030890 -0.129190 0.112910 -0.048610 0.036500 0.005280 0.020320 -0.003440 0.023490 0.069370 0.023730 -0.337560 -0.163930 0.148460 -0.019510 0.168660 0.055560 0.106880 -0.086240 0.275100

Netscape

Paine Webber -0.042860 -0.175370 0.073300 0.080510 -0.113730 0.084960 -0.090160 0.189190 -0.105300 0.029790 -0.041320 -0.046550 0.431820 -0.022220 0.026620 -0.123810 0.065220 -0.040140 -0.092530 -0.038430 -0.049180 0.008620 0.197440 0.003580 0.107140 0.068390 0.036360 -0.137430 0.051530 -0.116500 -0.010990 0.175930 -0.015590 0.172690 -0.075210 -0.063200 0.178570 -0.033540 -0.003500 -0.084210 -0.061150 0.020490 0.052210 0.023050 -0.029960 -0.474900 -0.021760 -0.128790 0.113040 0.109690 -0.078010 -0.038460 0.032320 0.070310

Raymond James 0.040000 -0.102560 -0.050000 -0.067670 -0.072580 -0.043480 0.018180 0.214290 -0.029410 0.015150 -0.179100 -0.054550 0.430770 0.027030 0.013160 -0.025970 0.013330 0.039470 0.017720 0.025000 -0.048780 0.000000 0.256410 0.015920 0.288890 0.103450 0.171880 -0.100000 -0.007410 -0.040600 -0.187500 0.038460 -0.092590 0.081630 -0.056600 -0.026800 0.319590 0.289060 0.261940 -0.116400 -0.101800 -0.031200 -0.062070 0.169120 -0.142640 -0.352940 -0.113640 -0.038460 0.137600 -0.035290 0.089270 -0.067420 -0.048190 -0.008610

Yahoo

VW NYSE, AMEX, & Nasdaq a -0.012910 -0.039170 0.013450 0.002730 -0.052350 0.023590 -0.020350 0.112570 0.000390 0.000130 -0.010620 0.023790 0.085730 0.017000 -0.001930 -0.002180 0.055870 0.017190 -0.000540 -0.004800 -0.039650 0.044570 0.069270 0.043060 0.009860 0.072840 0.053880 -0.008060 0.050810 0.014300 -0.059690 0.066390 -0.079140 0.049440 0.015170 -0.026540 0.128370 0.047630 0.023240 -0.017130 0.005220 0.043830 0.044050 0.037230 -0.020740 -0.224870 -0.072900 0.070410 0.045340 0.051610 -0.017060 0.011000 0.000940 0.051390

EW NYSE, AMEX, & Nasdaq a 0.005760 -0.053810 0.007100 -0.019420 -0.050770 0.013800 -0.047450 0.089620 0.000270 -0.020890 -0.031410 0.005050 0.122760 0.047140 -0.008530 -0.011290 0.022930 0.003470 0.019510 -0.003410 -0.056140 0.018960 0.053270 0.029130 0.043400 0.062360 0.047720 0.015840 0.036630 0.008960 -0.073610 0.022110 -0.060490 0.024620 -0.006280 -0.034530 0.116820 0.074950 0.033090 -0.019610 0.000710 0.022010 0.034700 0.015590 -0.015510 -0.270850 -0.052300 0.027940 0.078110 0.062010 0.034370 0.015250 -0.017020 0.048480

29-Jul-88 31-Aug-88 30-Sep-88 31-Oct-88 30-Nov-88 30-Dec-88 31-Jan-89 28-Feb-89 31-Mar-89 28-Apr-89 31-May-89 30-Jun-89 31-Jul-89 31-Aug-89 29-Sep-89 31-Oct-89 30-Nov-89 29-Dec-89 31-Jan-90 28-Feb-90 30-Mar-90 30-Apr-90 31-May-90 29-Jun-90 31-Jul-90 31-Aug-90 28-Sep-90 31-Oct-90 30-Nov-90 31-Dec-90 31-Jan-91 28-Feb-91 28-Mar-91 30-Apr-91 31-May-91 28-Jun-91 31-Jul-91 30-Aug-91 30-Sep-91 31-Oct-91 29-Nov-91 31-Dec-91 31-Jan-92 28-Feb-92 31-Mar-92 30-Apr-92 29-May-92 30-Jun-92 31-Jul-92 31-Aug-92 30-Sep-92 30-Oct-92 30-Nov-92 31-Dec-92 29-Jan-93 26-Feb-93 31-Mar-93 30-Apr-93 28-May-93 30-Jun-93 30-Jul-93

-0.006490 -0.039220 0.084080 -0.006330 -0.057320 0.042970 0.169930 -0.044690 -0.038830 -0.006130 0.154320 -0.003420 0.178380 0.087160 0.008270 -0.148150 0.103260 -0.096750 -0.115380 0.055900 0.137410 -0.104170 0.203490 -0.007920 -0.058820 -0.081460 -0.268570 0.046880 0.119400 0.095730 0.202450 0.168370 0.136940 0.019310 0.075760 -0.099720 0.198820 0.025220 0.202900 0.076310 -0.126870 0.299660 -0.056110 -0.066430 -0.088760 -0.163220 0.098770 -0.078430 -0.006130 0.043460 -0.071430 0.115380 0.166670 -0.063840 0.089950 -0.019420 0.080200 -0.050690 -0.052430 0.051550 0.063730

-0.067310 -0.041240 0.028670 0.084210 0.029130 -0.038100 0.178220 0.001010 0.025420 -0.041320 0.068710 0.034190 0.107440 0.034850 -0.083970 -0.075000 -0.034950 0.009430 -0.028040 0.060770 -0.038460 -0.020000 0.179290 -0.009170 -0.083330 -0.097780 -0.142860 -0.097220 0.124920 0.125000 0.135800 0.142610 0.125000 0.034190 0.094630 -0.128000 0.110090 -0.014880 0.016950 0.058330 -0.039760 0.182610 0.066180 0.080000 -0.077420 -0.006990 0.006690 -0.022220 -0.045450 -0.014290 0.016260 0.024000 0.100390 0.045110 -0.014390 -0.005840 0.081480 0.089040 0.133330 0.050280 0.026600

0.013950 -0.050460 0.039020 0.051640 -0.049550 -0.090050 0.270830 -0.037190 -0.047210 0.040540 0.060610 -0.061730 0.232460 -0.039430 -0.108210 -0.025100 -0.086580 -0.004740 -0.133330 0.000000 -0.033330 -0.034480 0.138550 -0.047620 0.061110 -0.132280 -0.091460 -0.046980 0.107140 0.070970 0.186750 0.172590 0.218340 0.089610 0.086090 -0.064020 0.081430 0.018180 0.148810 0.072540 -0.067630 0.231770 -0.031710 -0.019650 -0.015660 -0.109090 -0.004080 0.041240 0.019800 -0.030580 0.020150 0.093830 0.095710 -0.014490 0.098740 0.046650 0.045870 -0.010530 0.079430 0.069310 0.074070

0.004720 -0.015720 -0.003190 0.051280 -0.036700 0.053970 0.078310 0.032400 0.006110 -0.055060 0.137630 -0.017010 0.110000 0.062610 -0.063830 -0.069580 0.050940 -0.071810 -0.077370 0.029540 0.008200 0.028460 0.129220 0.024650 -0.163230 -0.068180 -0.121950 -0.012630 0.092780 0.025940 0.101150 0.184870 0.177300 -0.015060 0.087560 -0.103110 0.161200 0.029970 0.063490 0.081290 -0.016170 0.197180 -0.110040 -0.008850 -0.013390 -0.110860 0.050690 -0.024330 0.097260 -0.075180 -0.051850 0.031250 0.075560 0.051890 0.015700 0.022080 0.110500 -0.064450 0.102300 0.051440 0.019890

-0.036500 0.038180 0.036760 -0.028370 -0.065400 0.015750 0.116280 0.028060 -0.047620 0.014290 0.070700 -0.026490 0.258500 0.016430 -0.160430 -0.121020 -0.014200 0.000000 -0.037040 0.038770 0.044780 -0.042860 0.119700 0.013420 -0.066230 -0.113190 -0.096770 -0.151790 0.126740 0.037740 0.054550 0.319310 0.197370 0.054950 -0.041460 -0.142080 0.095540 0.081630 0.118920 0.202900 -0.152610 0.335070 -0.016040 0.080430 -0.045450 -0.142860 0.049140 0.023670 0.069360 -0.135350 -0.106920 0.140850 0.197280 0.010360 0.035900 -0.054650 0.089470 -0.072460 0.136460 0.073730 0.034330

0.025640 -0.050000 0.017370 0.157630 -0.069770 0.105000 0.193180 0.051430 -0.009090 0.018350 0.090090 0.069420 0.147290 -0.013510 0.009590 -0.122450 0.015500 -0.061070 -0.012360 0.148760 0.075400 -0.013420 0.118910 -0.036590 0.000000 -0.101270 -0.116340 -0.048000 0.084030 0.144500 0.074830 0.219240 0.270830 0.057380 0.063950 -0.041090 0.034290 0.038670 0.114260 0.105260 -0.125540 0.217820 0.165530 -0.003500 0.128840 -0.135510 -0.086490 -0.014910 0.006020 -0.071860 -0.113030 0.116790 0.209150 -0.032430 0.137650 -0.137930 0.043660 0.005490 0.038250 0.003370 -0.057890

-0.007180 -0.027940 0.037280 0.017650 -0.016400 0.020800 0.065940 -0.016360 0.021550 0.048530 0.039650 -0.004980 0.077720 0.022280 -0.001750 -0.029380 0.017850 0.018280 -0.070050 0.014980 0.024150 -0.028160 0.088870 -0.004300 -0.009380 -0.091730 -0.053870 -0.012420 0.065980 0.029540 0.049040 0.075690 0.028780 0.003350 0.040590 -0.044240 0.046830 0.026910 -0.011060 0.017720 -0.037270 0.107040 -0.001650 0.013290 -0.023680 0.013850 0.006520 -0.019240 0.039930 -0.020760 0.012420 0.010900 0.040190 0.017540 0.012330 0.005450 0.025010 -0.025510 0.029420 0.005130 -0.000760

0.000550 -0.023710 0.018700 -0.011780 -0.036700 0.019540 0.063130 0.002790 0.017030 0.030680 0.027370 -0.008330 0.031610 0.019290 0.004470 -0.050950 -0.008220 -0.012170 -0.045810 0.015750 0.022040 -0.026720 0.046650 0.005380 -0.027290 -0.109790 -0.080490 -0.056330 0.036650 -0.003870 0.085250 0.133650 0.077820 0.031020 0.030340 -0.034500 0.034920 0.028570 0.008670 0.023860 -0.025390 0.036450 0.149480 0.052010 -0.014120 -0.032890 0.005500 -0.039700 0.027280 -0.024440 0.011930 0.016320 0.067730 0.035650 0.066740 -0.007910 0.030880 -0.012760 0.037950 0.011970 0.014100

31-Aug-93 30-Sep-93 29-Oct-93 30-Nov-93 31-Dec-93 31-Jan-94 28-Feb-94 31-Mar-94 29-Apr-94 31-May-94 30-Jun-94 29-Jul-94 31-Aug-94 30-Sep-94 31-Oct-94 30-Nov-94 30-Dec-94 31-Jan-95 28-Feb-95 31-Mar-95 28-Apr-95 31-May-95 30-Jun-95 31-Jul-95 31-Aug-95 29-Sep-95 31-Oct-95 30-Nov-95 29-Dec-95 31-Jan-96 29-Feb-96 29-Mar-96 30-Apr-96 31-May-96 28-Jun-96 31-Jul-96 30-Aug-96 30-Sep-96 31-Oct-96 29-Nov-96 31-Dec-96 31-Jan-97 28-Feb-97 31-Mar-97 30-Apr-97 30-May-97 30-Jun-97 31-Jul-97 29-Aug-97

0.010140 0.082570 0.046610 -0.032390 -0.032970 0.016300 -0.048130 -0.190340 -0.013990 0.071770 -0.080000 0.014490 0.150000 -0.086210 0.013700 -0.060000 0.043480 0.020830 0.224490 -0.016000 0.039770 -0.010930 0.000660 0.088890 -0.005100 0.098050 -0.042250 0.065100 -0.115740 0.052360 -0.034830 0.032370 -0.055280 0.090430 0.064780 0.009220 0.022830 0.045890 0.025750 0.046030 0.081120 0.011150 0.044120 -0.128730 0.138210 0.060710 0.156360 -0.011700 -0.059170

0.039900 0.042110 -0.111110 0.018180 -0.016850 0.114290 -0.106670 -0.098270 0.083330 0.019820 -0.165640 -0.051470 0.141090 -0.123290 0.015630 -0.029230 -0.016000 0.081300 0.136840 -0.013330 0.114860 0.038180 0.055560 0.035090 -0.061020 0.042420 -0.075580 0.101890 -0.086210 0.157230 0.060870 0.020620 0.015150 0.014180 -0.020730 -0.047620 0.045560 -0.005350 0.016130 0.170370 0.013640 0.076230 0.055000 -0.125000 0.161900 0.070490 0.051920 0.199270 -0.031400

-0.166670 0.050000 0.039680 -0.092310 0.050850 -0.037100 -0.008400 0.152540 0.069120 -0.006900 0.083330 0.015380 0.107590 0.017140 0.064040 -0.015870 -0.064520 0.042530 -0.060770 0.205880 -0.032200 0.080810 -0.051400 -0.032510 0.010200 -0.065660 -0.084320 0.224850 -0.028990 0.161190 0.077250 0.007970 0.065140 -0.130110 0.162390 0.207650 -0.012200 0.231480 -0.121600

-0.045050 0.000000 0.905660 -0.128710 -0.011360 -0.275860 -0.031750 -0.311480 -0.071430 0.410260 -0.181820 0.155560 0.730770 0.566670 0.517730 0.411210 -0.006620 0.126670 -0.112430 -0.373330 0.510640 -0.098590 -0.185550 -0.155880 0.090910 0.333330 0.156250 0.094590 -0.172840 0.044780 0.028570 -0.034720 0.165470 -0.024690 0.050630 0.337350 -0.135140 0.062500 -0.245100 -0.012990 0.065790 -0.006170

0.118970 0.010310 -0.007400 -0.063230 -0.074380 0.073210 -0.094710 -0.083080 -0.010070 0.063860 -0.102560 0.046430 0.115490 -0.147690 0.143830 -0.034920 -0.059210 0.030910 0.119450 0.036590 0.070590 0.038680 0.117020 0.057140 0.042970 0.084600 -0.112000 0.004680 -0.081080 0.120290 0.013190 0.054230 -0.006170 0.077430 0.005790 -0.068330 0.014490 0.075510 0.066410 0.146620 0.015580 0.032210 0.144730 -0.105470 0.110920 0.115790 0.125000 0.181340 -0.124050

0.179360 0.049770 -0.096260 -0.084010 -0.013940 0.121910 -0.156850 -0.039400 -0.037110 -0.025560 -0.048120 0.065930 0.155460 -0.109320 0.052310 -0.091010 -0.002110 0.019070 0.120580 0.004750 0.031540 0.095320 0.077180 0.023720 0.038860 0.116550 -0.099790 -0.008620 -0.065220 0.185740 -0.015750 0.109330 -0.030290 -0.014930 -0.007580 -0.004070 -0.020510 0.041880 0.013570 0.196520 -0.049900 0.003500 0.105030 -0.069310 0.077870 0.075250 0.046820 0.220960 -0.082240

Source: Center for Research on Security Prices, University of Chicago. aVW (EW) NYSE, AMEX, & Nasdaq” represents the value-weighted (equal-weighted) index of all US publicly traded firms.

0.262630 0.408000 0.571020 0.005420 0.181650 -0.379000 -0.186270 0.469880 0.115780 -0.085400 -0.365460 -0.104430 0.310950 -0.045820 0.262710 0.017900 -0.334070 -0.231020 0.032190 -0.099790 0.092380 0.084570 0.144250 0.085180

0.067220 0.019530 -0.099620 -0.088510 0.014080 0.097220 -0.097050 -0.047010 -0.007410 -0.007760 -0.053030 0.032000 0.015190 -0.115380 0.060870 -0.098690 0.100920 0.000000 0.166330 -0.071940 0.062020 0.160290 -0.044300 0.086090 -0.055120 0.025970 0.120250 0.011070 -0.101120 0.037500 -0.036390 0.106920 -0.051140 0.053650 0.085710 -0.115790 -0.012140 0.018180 0.119050 0.154260 0.041290 0.280000 -0.089580 -0.134100 0.203540 0.048530 -0.014080 0.148210 -0.043550

0.154410 0.087380 -0.035710 -0.027780 -0.050000 0.064960 -0.070920 -0.048550 -0.040320 -0.003030 -0.016950 -0.068970 0.185190 -0.026250 -0.032260 -0.041670 -0.026090 0.095710 0.163930 -0.023100 0.014490 0.050000 0.059320 0.122580 0.011490 -0.007270 -0.011490 0.052330 -0.056570 0.035290 0.005680 0.021240 0.005560 0.005520 -0.001320 -0.077350 0.119760 0.041500 0.005150 0.164100 0.065550 0.070540 0.034880 -0.050040 0.108700 0.176470 -0.001640 0.057080 0.002160

-0.058820 -0.250000 -0.142860 0.090280 0.082800 -0.070590 -0.031650 -0.111110 0.992650 -0.107010 -0.070250 0.213330 -0.054950 0.093020 0.602840 0.053100

0.039340 0.000610 0.018040 -0.017350 0.019450 0.031330 -0.024090 -0.045740 0.009830 0.009500 -0.027380 0.030410 0.042830 -0.018650 0.014870 -0.037070 0.012750 0.020550 0.039620 0.026970 0.024880 0.034160 0.030840 0.040670 0.009340 0.036390 -0.011150 0.042970 0.015400 0.028090 0.016050 0.011200 0.025130 0.026720 -0.007660 -0.053390 0.032220 0.052990 0.013940 0.065730 -0.011350 0.053040 -0.000880 -0.044390 0.042460 0.071250 0.044200 0.076310 -0.036450

0.040400 0.025790 0.040090 -0.024370 0.016120 0.048920 -0.009490 -0.046020 -0.010820 -0.000270 -0.026570 0.015470 0.036790 0.004500 -0.002400 -0.040570 -0.012860 0.027710 0.027990 0.018740 0.025980 0.020500 0.048690 0.055180 0.030380 0.025990 -0.040580 0.017200 0.009780 0.033290 0.031540 0.024120 0.057330 0.061050 -0.030600 -0.078620 0.044770 0.028970 -0.019970 0.024770 -0.001420 0.061720 -0.010430 -0.047880 -0.021390 0.085170 0.044240 0.048620 0.027020

Returns

Charles Schwab 31-Jan-84 29-Feb-84 30-Mar-84 30-Apr-84 31-May-84 29-Jun-84 31-Jul-84 31-Aug-84 28-Sep-84 31-Oct-84 30-Nov-84 31-Dec-84 31-Jan-85 28-Feb-85 29-Mar-85 30-Apr-85 31-May-85 28-Jun-85 31-Jul-85 30-Aug-85 30-Sep-85 31-Oct-85 29-Nov-85 31-Dec-85 31-Jan-86 28-Feb-86 31-Mar-86 30-Apr-86 30-May-86 30-Jun-86 31-Jul-86 29-Aug-86 30-Sep-86 31-Oct-86 28-Nov-86 31-Dec-86 30-Jan-87 27-Feb-87 31-Mar-87 30-Apr-87 29-May-87 30-Jun-87 31-Jul-87 31-Aug-87 30-Sep-87 30-Oct-87 30-Nov-87 31-Dec-87 29-Jan-88

-0.504 -0.159 -0.094 0.083

Quick & Reilly -0.146 -0.008 0.151 0.015 0.039 -0.181 0.224 -0.056 0.051 -0.144 0.016 0.508 0.021 -0.026 -0.108 0.100 0.061 0.005 -0.049 -0.120 0.106 0.149 0.275 0.119 0.080 -0.003 -0.221 0.101 0.064 -0.183 -0.006 -0.170 0.346 -0.080 -0.093 0.350 0.026 -0.024 -0.109 0.008 -0.105 0.052 0.219 -0.066 -0.473 -0.037 0.075 0.010

Waterhouse Investor Services

0.153 0.031 -0.091 0.067 -0.219 -0.040 -0.125 -0.143

29-Feb-88 31 -Mar-88 29-Apr-88 31-May-88 30-Jun-88 29-Jul-88 31-Aug-88 30-Sep-88 31-Oct-88 30-Nov-88 30-Dec-88 29-Jan-89 29-Feb-89 32 -Mar-88 29-Apr-89 31-May-89 30-Jun-89 29-Jul-89 31-Aug-89 30-Sep-89 31-Oct-89 30-Nov-89 30-Dec-89 29-Jan-90 29-Feb-90 33 -Mar-88 29-Apr-90 31-May-90 30-Jun-90 29-Jul-90 31-Aug-90 30-Sep-90 31-Oct-90 30-Nov-90 30-Dec-90 29-Jan-91 29-Feb-91 34 -Mar-88 29-Apr-91 31-May-91 30-Jun-91 29-Jul-91 31-Aug-91 30-Sep-91 31-Oct-91 30-Nov-91 30-Dec-91 29-Jan-92 29-Feb-92 35 -Mar-88

0.385 -0.181 0.034 -0.098 0.055 0.034 -0.100 0.000 0.111 -0.100 0.000 0.519 -0.159 0.029 0.141 0.163 -0.064 0.503 -0.045 -0.111 -0.069 -0.038 0.110 -0.025 0.130 0.115 -0.109 0.041 -0.032 -0.105 -0.073 -0.099 0.113 -0.059 -0.042 0.410 0.141 0.110 -0.103 0.241 0.100 0.113 0.032 0.097 0.215 -0.132 0.391 0.051 0.043 0.041

0.084 -0.093 0.031 -0.084 0.033 -0.032 -0.017 0.044 0.000 -0.016 -0.054 0.379 -0.079 -0.036 -0.019 0.245 -0.132 0.179 0.034 -0.015 -0.060 -0.052 -0.084 -0.119 0.146 -0.028 -0.019 0.178 -0.082 -0.036 -0.152 -0.088 -0.060 0.046 0.012 0.280 0.234 0.171 -0.073 0.018 -0.042 0.154 0.055 -0.067 0.058 -0.015 0.388 -0.009 0.043 0.004

0.056 0.263 -0.021 0.064 -0.200 -0.300 -0.071 0.231 -0.156 0.037 -0.214 0.364 0.000 0.267 -0.105 0.176 0.200 0.000 -0.022 -0.022 -0.044 -0.070 -0.100 -0.028 -0.143 0.133 0.029 -0.029 0.118 -0.026 -0.022 -0.029 -0.059 -0.063 -0.033 0.034 0.200 0.361 0.143 0.179 0.212 0.297 0.052 0.326 -0.018 0.107 0.774 -0.036 0.231 0.167

29-Apr-92 31-May-92 30-Jun-92 29-Jul-92 31-Aug-92 30-Sep-92 31-Oct-92 30-Nov-92 30-Dec-92 29-Jan-93 29-Feb-93 36 -Mar-88 29-Apr-93 31-May-93 30-Jun-93 29-Jul-93 31-Aug-93 30-Sep-93 31-Oct-93 30-Nov-93 30-Dec-93 29-Jan-94 29-Feb-94 37 -Mar-88 29-Apr-94 31-May-94 30-Jun-94 29-Jul-94 31-Aug-94 30-Sep-94 31-Oct-94 30-Nov-94 30-Dec-94 29-Jan-95 29-Feb-95 38 -Mar-88 29-Apr-95 31-May-95 30-Jun-95 29-Jul-95 31-Aug-95 30-Sep-95 31-Oct-95 30-Nov-95 30-Dec-95 29-Jan-96 29-Feb-96 39 -Mar-88 29-Apr-96 31-May-96

-0.175 0.013 -0.186 0.050 -0.086 -0.200 0.128 0.228 0.050 0.160 0.070 0.127 -0.101 0.076 0.213 0.019 0.134 0.049 0.005 -0.079 0.016 -0.087 -0.068 -0.023 0.058 0.066 -0.182 0.084 0.150 -0.037 0.196 -0.099 0.094 0.150 0.109 0.090 0.064 0.022 0.254 0.053 0.011 0.244 -0.210 0.060 -0.170 0.250 0.015 0.015 -0.052 -0.010

-0.249 0.004 -0.023 -0.042 -0.021 0.025 0.043 0.212 -0.025 0.091 -0.029 0.043 -0.074 0.044 0.160 0.065 0.141 0.036 -0.010 -0.043 0.096 -0.010 -0.190 -0.097 0.029 0.024 -0.056 -0.025 0.187 -0.115 -0.005 -0.034 0.146 0.088 0.143 0.014 0.144 0.157 0.174 0.051 -0.027 0.227 -0.223 0.071 -0.192 0.134 0.132 0.124 0.034 0.113

-0.187 0.055 -0.213 0.029 -0.209 0.045 0.087 0.328 -0.012 0.232 -0.035 0.051 -0.098 0.473 0.229 -0.015 0.299 0.176 -0.057 -0.183 -0.175 0.000 -0.035 -0.140 -0.092 -0.047 -0.123 -0.028 0.323 -0.169 0.142 -0.116 -0.140 0.184 0.198 -0.072 0.000 0.085 0.314 0.201 0.045 0.114 -0.225 0.000 0.253 -0.045 0.042 0.355 0.086 0.010

30-Jun-96 29-Jul-96 31-Aug-96 30-Sep-96 31-Oct-96 30-Nov-96 30-Dec-96 29-Jan-97 29-Feb-97 40 -Mar-88 29-Apr-97 31-May-97 30-Jun-97 29-Jul-97 31-Aug-97

0.010 -0.013 0.036 -0.080 0.089 0.210 0.058 0.172 0.001 -0.147 0.145 0.111 -0.003 0.160 -0.089

0.014 0.013 -0.001 0.013

-0.041 -0.127 0.034 -0.094 -0.009 0.084 0.053 0.226 -0.039 -0.105 0.060 0.042 0.011 0.129 0.307

There are many different methods of calculating beta Different indices and different lengths of time This table shows betas for different indices and different lenghts Betas Levered

Charles Schwab full period VW EW 5yr VW EW

92-96

5yr VW EW

most recent

2yr VW EW

most recent

Quick & Reilly

Waterhouse Investor Services

2.34 1.74

2.18 1.90

1.40 1.35

2.30 1.36

2.20 1.43

3.18 2.17

2.24 1.49

1.79 1.88

3.22 2.84

2.04 1.09

1.13 1.89

0.63 0.94

We must remember that betas obtained from stocks correspond to EQUITY betas and thus include financial risk We use leverage and the Hamada equation to unlever the betas Leverage d/v d/e Unlevered Betas

0.080 0.087

Charles Schwab

0.000 0.000

Quick & Reilly

0.380 0.613

Waterhouse Investor Services

Assuming 35% tax rate

full period VW EW 5yr VW EW

92-96

5yr VW EW

most recent

2yr VW EW

most recent

2.21 1.65

2.18 1.90

1.00 0.96

2.17 1.29

2.20 1.43

2.27 1.55

2.12 1.41

1.79 1.88

2.30 2.03

1.93 1.03

1.13 1.89

0.45 0.67

Using the CAPM model to get the cost of capital for the project Risk free rate Reasonable approach is to use the current yield on long term government bonds

If we assume that the project will last for 10 years, we use 10 yr y Market risk premium One possible approach to estimate the market risk premium:

Historical average annual return of large stocks minus that of long term US government bonds o estimate = 12.7-5.5 From exhibit 3 0.072 Using this definition of Market premium the estimated cost for the project would be

or

k = 0.0634 + 0.072* 2.2 k = 0.0634 + 0.072* 2.07

Cost of capital for the project would oscilate ar depending on the specific value of Rf and the Another possible approach to estimate the market risk premium Follow authors' idea that the market premium in the present day is between 4 and 6 percent Use 5%

0.050 Using this definition of Market premium the estimated cost for the project would be

or

k = 0.0634 + 0.05*2.2 k = 0.0634 + 0.05* 2.07

Cost of capital for the project would oscilate ar depending on the specific value of Rf and the

Conclusion

The cost of capital for the project is high. The estimated cost of capital represents the risk of real investments in the discount brokerage in The discount brokerage business has very high systematic risk. All of the revenues are linked to

If Ameritrade uses debt to finance the project, the cost of capital may fall but the equity beta (a

VWI

EWI -0.012910 -0.039170 0.013450 0.002730 -0.052350 0.023590 -0.020350 0.112570 0.000390 0.000130 -0.010620 0.023790 0.085730 0.017000 -0.001930 -0.002180 0.055870 0.017190 -0.000540 -0.004800 -0.039650 0.044570 0.069270 0.043060 0.009860 0.072840 0.053880 -0.008060 0.050810 0.014300 -0.059690 0.066390 -0.079140 0.049440 0.015170 -0.026540 0.128370 0.047630 0.023240 -0.017130 0.005220 0.043830 0.044050 0.037230 -0.020740 -0.225 -0.073 0.070 0.045

0.005760 -0.053810 0.007100 -0.019420 -0.050770 0.013800 -0.047450 0.089620 0.000270 -0.020890 -0.031410 0.005050 0.122760 0.047140 -0.008530 -0.011290 0.022930 0.003470 0.019510 -0.003410 -0.056140 0.018960 0.053270 0.029130 0.043400 0.062360 0.047720 0.015840 0.036630 0.008960 -0.073610 0.022110 -0.060490 0.024620 -0.006280 -0.034530 0.116820 0.074950 0.033090 -0.019610 0.000710 0.022010 0.034700 0.015590 -0.015510 -0.271 -0.052 0.028 0.078

0.052 -0.017 0.011 0.001 0.051 -0.007 -0.028 0.037 0.018 -0.016 0.021 0.066 -0.016 0.022 0.049 0.040 -0.005 0.078 0.022 -0.002 -0.029 0.018 0.018 -0.070 0.015 0.024 -0.028 0.089 -0.004 -0.009 -0.092 -0.054 -0.012 0.066 0.030 0.049 0.076 0.029 0.003 0.041 -0.044 0.047 0.027 -0.011 0.018 -0.037 0.107 -0.002 0.013 -0.024

0.062 0.034 0.015 -0.017 0.048 0.001 -0.024 0.019 -0.012 -0.037 0.020 0.063 0.003 0.017 0.031 0.027 -0.008 0.032 0.019 0.004 -0.051 -0.008 -0.012 -0.046 0.016 0.022 -0.027 0.047 0.005 -0.027 -0.110 -0.080 -0.056 0.037 -0.004 0.085 0.134 0.078 0.031 0.030 -0.035 0.035 0.029 0.009 0.024 -0.025 0.036 0.149 0.052 -0.014

0.014 0.007 -0.019 0.040 -0.021 0.012 0.011 0.040 0.018 0.012 0.005 0.025 -0.026 0.029 0.005 -0.001 0.039 0.001 0.018 -0.017 0.019 0.031 -0.024 -0.046 0.010 0.010 -0.027 0.030 0.043 -0.019 0.015 -0.037 0.013 0.021 0.040 0.027 0.025 0.034 0.031 0.041 0.009 0.036 -0.011 0.043 0.015 0.028 0.016 0.011 0.025 0.027

-0.033 0.006 -0.040 0.027 -0.024 0.012 0.016 0.068 0.036 0.067 -0.008 0.031 -0.013 0.038 0.012 0.014 0.040 0.026 0.040 -0.024 0.016 0.049 -0.009 -0.046 -0.011 0.000 -0.027 0.015 0.037 0.005 -0.002 -0.041 -0.013 0.028 0.028 0.019 0.026 0.021 0.049 0.055 0.030 0.026 -0.041 0.017 0.010 0.033 0.032 0.024 0.057 0.061

-0.008 -0.053 0.032 0.053 0.014 0.066 -0.011 0.053 -0.001 -0.044 0.042 0.071 0.044 0.076 -0.036

-0.031 -0.079 0.045 0.029 -0.020 0.025 -0.001 0.062 -0.010 -0.048 -0.021 0.085 0.044 0.049 0.027

Beta obtained using 60 months as suggested in the book

Beta obtained using 60 months as suggested in the book

us include financial risk from leverage

from Exhibit 4

Avg 1.80 1.50

2.22 1.42

Beta obtained using 60 months as suggested in the book

2.07 1.77

Beta obtained using 60 months as suggested in the book

1.17 1.20

10 years, we use 10 yr yield

0.0634 From exhibit 3

US government bonds over the longer period (29-96)

Market premium

the project would be 0.223 0.212

project would oscilate around 22%

ific value of Rf and the method to get beta

een 4 and 6 percent

Market premium

the project would be 0.174 0.167

project would oscilate around 17%

ific value of Rf and the method to get beta

he discount brokerage industry revenues are linked to stock market activity and performance

l but the equity beta (and the cost of equity) will increase with the level of leverage used.