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Risk Statistics Report

Risk statistics are very important measurements in the investment world. In this discussion, you will research places where you can find key risk statistics for some of the stocks in your portfolio and then apply the Capital Asset Pricing Model. The Capital Asset Pricing Model (CAPM) is one of the most popular and enduring pricing models in all of finance. In this exercise, you will apply the CAPM to your portfolio. Before starting this discussion, you might want to review the CAPM section of your textbook.

Examine your portfolio. Prepare an Excel spreadsheet listing each of your stocks horizontally along with their stock ticker symbol. Next, visit the ZACKS© site. Click the “Research” tab on the top of the page, and under “Quotes and Research,” request a “Full Company Report” for the stock on your spreadsheet. When you get your company report, find the Beta for each of your stocks and record it on the spreadsheet. Now that you have your Betas, calculate your required return for each of your stocks.

The required return is the net result of applying the Capital Asset Pricing Model (CAPM) to the stocks you have in your portfolio. In order to compute the required rate of return, you will need three statistics:

  1. The risk free rate. This can be obtained from the Federal Reserve website: Board of Governors of the Federal Reserve System. (2017). http://www.federalreserve.gov/releases/h15/update/
  2. The return of the market as a whole. Traditionally, investors have used the five year return on the S&P 500 index as a proxy for the total market return. For this exercise, you can approximate the return of the market by using the large company stock annual return table from your text.
  3. Beta, which you obtained above.
    • Then, simply use the CAPM formula from your reading to compute what the required return on your stocks should be.
    • Now, select one of your stocks in your portfolio, and compute the annualized return you have actually achieved since holding the stock. (Remember returns are always stated on an annual basis.) On the Discussion Board, discuss your calculated required returns for each stock. Additionally, post the actual results of your one selected stock and compare the number to the required return for that stock you computed using CAPM. Speculate why your calculated return and your required returns are different, if they are.
    • The stocks that need to be used are: Procter & Gamble (PG), Teladoc(Tdoc), Adobe (adbe), Microsoft, Tokyo electron limited, shoprite holdings, coca-cola enterprises inc, vanguard treasury bond, nuveen high yield municipal bond fund.

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