Group Task

 

GROUP TASK 1.  Alfi Faridatus Saadah (1806160844) 2.  Boi Hutagalung (1806249062) PROBLEMS:  1.  Calculate the monthly excess returns, r M-r ff ,  on the market portfolio. 2.  MSFT is not currently paying dividend. The closing price in December 1990 (adjusted for stock splits) was $16.72. Calculate the monthly excess returns, r MSFT MSFT-r f  f,  on Microsoft common stock. 3.  a. Estimate the β for MSFT using the linear regression model r MSFT MSFT - r f  f  =   = α + β(r M - r ff )   2  b. What is the adjusted R  for the regression model (that is, what proportion of the variation in r MSFT MSFT  - r ff  is    is explained by variation in r M - r ff )? )  ? You can 3. useYou the will CAPM estimate Microsoft's required return. You calculated Microsoft's beta in question needtothe following additional information: Riskless Rate at Market Risk Premium Year-End 1995 (rM - rf ) Short-term 5,13 % 8,40 % Intermediate-term 5,50 % 7,40 % Long-term 6,00 % 7,00 % 4.  5.  6.  7.  8. 

Estimate MSFT's required return (re) using the CAPM and the short-term riskless rate. Estimate re using the CAPM and the intermediate-term i ntermediate-term riskless rate. Estimate re using the CAPM and the long-term l ong-term riskless rate. Compare your answers to questions 4, 5, and 6. Can you explain why they differ? Why is it important to be consistent in choosing the riskless rate and tthe he market risk premium when you use the CAPM?

 

GROUP TASK 1.  Alfi Faridatus Saadah (1806160844) 2.  Boi Hutagalung (1806249062) GROUP TASK REAL WORLD APPLICATION ESTIMATING MICROSOFT'S REQUIRED RETURN

Microsoft Corporation (stock symbol MSFT) is one of the leading providers of computer software in the world. Its common stock is traded in the over-the-counter market and listed in  NASDAQ. The following table shown MSFT's monthly closing price during 1991-1995. 1991-199 5.

Jan-91 Feb-91 Mar-91 Apr-91 Mei-91 Jun-91 Jul-91 Agu-91 Sep-91 Okt-91

MSFT Closing Price ($) 21,81 23,06 23,58 22,00 24,39 22,71 24,50 28,42 29,67 31,29

 Nov-91 Des-91 Jan-92 Feb-92 Mar-92 Apr-92 Mei-92 Jun-92 Jul-92 Agu-92 Sep-92 Okt-92  Nov-92 Des-92 Jan-93 Feb-93 Mar-93 Apr-93

32,42 37,08 40,00 41,17 39,50 36,75 40,33 35,00 36,00 37,13 40,25 44,38 46,56 42,69 43,25 41,69 46,25 42,75

Month

Mei-93 Jun-93

46,31 44,00

Market Return

T-Bill Return

Month

4,42% 7,16% 2,38% 0,28% 4,28% 4,57% 4,68% 2,35% -1,64% 1,34%

0,52% 0,48% 0,44% 0,53% 0,47% 0,42% 0,49% 0,46% 0,46% 0,42%

Jul-93 Agu-93 Sep-93 Okt-93 Nov-93 Des-93 Jan-94 Feb-94 Mar-94 Apr-94

-4,04% 11,43% -1,86% 1,28% -1,96% 2,91% 0,54% -1,45% 4,03% -2,02% 1,15% 0,36% 3,37% 1,31% 0,73% 1,35% 2,15% -2,45%

0,39% 0,38% 0,34% 0,28% 0,34% 0,32% 0,28% 0,32% 0,31% 0,26% 0,26% 0,23% 0,23% 0,28% 0,23% 0,22% 0,25% 0,24%

Mei-94 Jun-94 Jul-94 Agu-94 Sep-94 Okt-94 Nov-94 Des-94 Jan-95 Feb-95 Mar-95 Apr-95 Mei-95 Jun-95 Jul-95 Agu-95 Sep-95 Okt-95

2,70% 0,33%

0,22% 0,25%

Nov-95 Des-95

MSFT Closing Price ($) 37,00 37,56 41,25 40,06 40,00 40,31 42,56 41,25 42,35 46,25 53,75 51,63 51,50 58,13 56,13 63,00 62,88 61,13 59,38 63,00 71,13 81,75 84,69 90,38 90,50 92,50 90,50 100,00 87,13 87,75

Market Return

T-Bill Return

-0,47% 3,81% -0,74% 2,03% -0,94% 1,23% 3,35% -2,70% -4,35% 1,30%

0,24% 0,25% 0,26% 0,22% 0,25% 0,23% 0,25% 0,21% 0,27% 0,27%

1,63% -2,47% 3,31% 4,07% -2,41% 2,29% -3,67% 1,46% 2,60% 3,88% 2,96% 2,91% 3,95% 2,35% 3,33% 0,27% 0,43% -0,35%

0,32% 0,31% 0,28% 0,37% 0,37% 0,38% 0,37% 0,44% 0,42% 0,40% 0,46% 0,44% 0,54% 0,47% 0,45% 0,47% 4,19% 0,47%

4,40% 1,85%

0,42% 0,49%

 

GROUP TASK 1.  Alfi Faridatus Saadah (1806160844) 2.  Boi Hutagalung (1806249062) SOLUTIONS: 1 & 2. Monthly excess returns (r M-r ff )   and monthly excess returns (r MSFT ), on Microsoft common stock MSFT-r f  f ), are as follows: Month

MSFT Return (rMSFT)

Market Return (rM)

T-Bill Return (rf )

Market Excess Returns (rM-rf )

MSFT Excess Return (rMSFT-rf )

Des-90 Jan-91

MSFT Closing Price ($) 16,72 21,81

30,44%

4,42%

0,52%

3,90%

29,92%

Feb-91 Mar-91 Apr-91 Mei-91 Jun-91 Jul-91 Agu-91 Sep-91 Okt-91  Nov-91 Des-91 Jan-92 Feb-92 Mar-92 Apr-92 Mei-92 Jun-92 Jul-92 Agu-92 Sep-92 Okt-92  Nov-92 Des-92 Jan-93 Feb-93 Mar-93 Apr-93 Mei-93 Jun-93 Jul-93 Agu-93 Sep-93 Okt-93  Nov-93 Des-93 Jan-94 Feb-94 Mar-94 Apr-94 Mei-94 Jun-94 Jul-94 Agu-94 Sep-94 Okt-94  Nov-94 Des-94 Jan-95 Feb-95 Mar-95 Apr-95 Mei-95 Jun-95 Jul-95 Agu-95 Sep-95 Okt-95  Nov-95

23,06 23,58 22,00 24,39 22,71 24,50 28,42 29,67 31,29 32,42 37,08 40,00 41,17 39,50 36,75 40,33 35,00 36,00 37,13 40,25 44,38 46,56 42,69 43,25 41,69 46,25 42,75 46,31 44,00 37,00 37,56 41,25 40,06 40,00 40,31 42,56 41,25 42,35 46,25 53,75 51,63 51,50 58,13 56,13 63,00 62,88 61,13 59,38 63,00 71,13 81,75 84,69 90,38 90,50 92,50 90,50 100,00 87,13

5,73% 2,25% -6,70% 10,86% -6,89% 7,88% 16,00% 4,40% 5,46% 3,61% 14,37% 7,87% 2,93% -4,06% -6,96% 9,74% -13,22% 2,86% 3,14% 8,40% 10,26% 4,91% -8,31% 1,31% -3,61% 10,94% -7,57% 8,33% -4,99% -15,91% 1,51% 9,82% -2,88% -0,15% 0,78% 5,58% -3,08% 2,67% 9,21% 16,22% -3,94% -0,25% 12,87% -3,44% 12,24% -0,19% -2,78% -2,86% 6,10% 12,90% 14,93% 3,60% 6,72% 0,13% 2,21% -2,16% 10,50% -12,87%

7,16% 2,38% 0,28% 4,28% 4,57% 4,68% 2,35% -1,64% 1,34% -4,04% 11,43% -1,86% 1,28% -1,96% 2,91% 0,54% -1,45% 4,03% -2,02% 1,15% 0,36% 3,37% 1,31% 0,73% 1,35% 2,15% -2,45% 2,70% 0,33% -0,47% 3,81% -0,74% 2,03% -0,94% 1,23% 3,35% -2,70% -4,35% 1,30% 1,63% -2,47% 3,31% 4,07% -2,41% 2,29% -3,67% 1,46% 2,60% 3,88% 2,96% 2,91% 3,95% 2,35% 3,33% 0,27% 0,43% -0,35% 4,40%

0,48% 0,44% 0,53% 0,47% 0,42% 0,49% 0,46% 0,46% 0,42% 0,39% 0,38% 0,34% 0,28% 0,34% 0,32% 0,28% 0,32% 0,31% 0,26% 0,26% 0,23% 0,23% 0,28% 0,23% 0,22% 0,25% 0,24% 0,22% 0,25% 0,24% 0,25% 0,26% 0,22% 0,25% 0,23% 0,25% 0,21% 0,27% 0,27% 0,32% 0,31% 0,28% 0,37% 0,37% 0,38% 0,37% 0,44% 0,42% 0,40% 0,46% 0,44% 0,54% 0,47% 0,45% 0,47% 4,19% 0,47% 0,42%

6,68% 1,94% -0,25% 3,81% 4,15% 4,19% 1,89% -2,10% 0,92% -4,43% 11,05% -2,20% 1,00% -2,30% 2,59% 0,26% -1,77% 3,72% -2,28% 0,89% 0,13% 3,14% 1,03% 0,50% 1,13% 1,90% -2,69% 2,48% 0,08% -0,71% 3,56% -1,00% 1,81% -1,19% 1,00% 3,10% -2,91% -4,62% 1,03% 1,31% -2,78% 3,03% 3,70% -2,78% 1,91% -4,04% 1,02% 2,18% 3,48% 2,50% 2,47% 3,41% 1,88% 2,88% -0,20% -3,76% -0,82% 3,98%

5,25% 1,81% -7,23% 10,39% -7,31% 7,39% 15,54% 3,94% 5,04% 3,22% 13,99% 7,53% 2,65% -4,40% -7,28% 9,46% -13,54% 2,55% 2,88% 8,14% 10,03% 4,68% -8,59% 1,08% -3,83% 10,69% -7,81% 8,11% -5,24% -16,15% 1,26% 9,56% -3,10% -0,40% 0,55% 5,33% -3,29% 2,40% 8,94% 15,90% -4,25% -0,53% 12,50% -3,81% 11,86% -0,56% -3,22% -3,28% 5,70% 12,44% 14,49% 3,06% 6,25% -0,32% 1,74% -6,35% 10,03% -13,29%

Des-95

87,75

0,71%

1,85%

0,49%

1,36%

0,22%

 

GROUP TASK 1.  Alfi Faridatus Saadah (1806160844) 2.  Boi Hutagalung (1806249062) 3.  Using Excel we can make r MSFT    = α + β(r M - r ff ), )  , linear regression model MSFT - r ff  = SUMMARY OUTPUT

Regression Statist Statistics ics Mul tipl e R

0,341610582

R Square

0,116697790

 Adjusted  Adjust ed R Square

0,101468441

Sta nndd aarrd Err rroo r

0 ,0 ,0 7788 7744 4400 8822

Observations

60

 ANOVA  ANOV A df Regression

SS 1

0,047513515 0,00620063

Residual

58

0,359636568

T otal

59

0,407150082

Coefficients

MS

0,047513515

Standard Error

t Stat

F 7,662690885

P-value

Significance F

 

0,0075553

Lower 95%

Upper 95%

Lower 95,0%

Upper 95,0%

In te te rce rcepp t

0 ,0 ,0 1177 1155 1100 6611

0 ,0 ,0 10 10 7788 5544 9999

1 ,5 ,5 9900 1199 6633 5588

0 ,1 ,1 1177 2222 7711

-0 ,,00 0044 4433 8844 6611

0 ,,00 3388 7744 0055 8833

-0 ,,00 0044 4433 8844 6611

0 ,,00 3388 7744 0055 8833

R is isk Prem rem iu iu m

0 ,9 ,9 9944 7777 3322 6622

0 ,3 ,3 5599 3366 3300 7755

2 ,7 ,7 6688 1155 6655 8866

0 ,0 ,0 0077 5555 5533

0 ,,22 7755 4422 9999 1122

1 ,,77 1144 11 11 6666 1122

0 ,,22 7755 4422 9999 1122

1 ,,77 1144 1111 66 66 1122

a.  Using summary output above, we know βMSFT is 0,994773262 and it’s a significant value (Pvalue