公司理财（英文版·第5版）课件 第10章　资本市场与风险的定价

CorporateFinanceFifthEditionChapter10CapitalMarketsandthePricingofRiskCopyright©2020,2017,2014PearsonEducation,Inc.

AllRightsReservedChapterOutline10.1RiskandReturn:Insightsfrom92YearsofInvestorHistory10.2CommonMeasuresofRiskandReturn10.3HistoricalReturnsofStocksandBonds10.4TheHistoricalTradeoffBetweenRiskandReturn10.5CommonVersusIndependentRisk10.6DiversificationinStockPortfolios10.7MeasuringSystematicRisk10.8BetaandtheCostofCapitalLearningObjectives(1of4)Defineaprobabilitydistribution,themean,thevariance,thestandarddeviation,andthevolatility.Computetherealizedortotalreturnforaninvestment.Usingtheempiricaldistributionofrealizedreturns,estimateexpectedreturn,variance,andstandarddeviation(orvolatility)ofreturns.LearningObjectives(2of4)Usethestandarderroroftheestimatetogaugetheamountofestimationerrorintheaverage.Discussthevolatilityandreturncharacteristicsoflargestocksversuslargestocksandbonds.Describetherelationshipbetweenvolatilityandreturnofindividualstocks.LearningObjectives(3of4)Defineandcontrastidiosyncraticandsystematicriskandtheriskpremiumrequiredfortakingeachon.Defineanefficientportfolioandamarketportfolio.Discusshowbetacanbeusedtomeasurethesystematicriskofasecurity.LearningObjectives(4of4)UsetheCapitalAssetPricingModeltocalculatetheexpectedreturnforariskysecurity.UsetheCapitalAssetPricingModeltocalculatethecostofcapitalforaparticularproject.Explainwhyinanefficientcapitalmarketthecostofcapitaldependsonsystematicriskratherthandiversifiablerisk.10.1RiskandReturn:Insightsfrom92YearsofInvestorHistory(1of4)Howwould$100havegrownifitwereplacedinoneofthefollowinginvestments?Standard&Poor’s500:90U.S.stocksupto1957and500afterthat.LeadersintheirindustriesandamongthelargestfirmstradedonU.S.MarketsSmallstocks:SecuritiestradedontheN

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Ewithmarketcapitalizationsinthebottom20%10.1RiskandReturn:Insightsfrom92YearsofInvestorHistory(2of4)Howwould$100havegrownifitwereplacedinoneofthefollowinginvestments?WorldPortfolio:Internationalstocksfromalltheworld’smajorstockmarketsinNorthAmerica,Europe,andAsiaCorporateBonds:Long-term,A

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A-ratedU.S.corporatebondswithmaturitiesofapproximately20yearsTreasuryBills:Aninvestmentinthree-monthTreasurybillsFigure10.1Valueof$100InvestedattheEndof1925Source:ChicagoCenterforResearchinSecurityPrices,StandardandPoor’s,M

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I,andGlobalFinancialData.10.1RiskandReturn:Insightsfrom92YearsofInvestorHistory(3of4)Smallstockshadthehighestlong-termreturns,whileT-Billshadthelowestlong-termreturnsSmallstockshadthelargestfluctuationsinprice,whileT-BillshadthelowestHigherriskrequiresahigherreturn10.1RiskandReturn:Insightsfrom92YearsofInvestorHistory(4of4)Fewpeopleevermakeaninvestmentfor92yearsMorerealisticinvestmenthorizonsanddifferentinitialinvestmentdatescangreatlyinfluenceeachinvestment'sriskandreturnFigure10.2Valueof$100InvestedinAlternativeInvestmentforDifferingHorizonsSource:ChicagoCenterforResearchinSecurityPrices,StandardandPoor’s,M

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I,andGlobalFinancialData.10.2CommonMeasuresofRiskandReturnProbabilityDistributionsWhenaninvestmentisrisky,itmayearndifferentreturnsEachpossiblereturnhassomelikelihoodofoccurringThisinformationissummarizedwithaprobabilitydistribution,whichassignsaprobability,PR,thateachpossiblereturn,R,willoccurAssumeB

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Istockcurrentlytradesfor$100pershareInoneyear,thereisa25%chancethesharepricewillbe$140,a50%chanceitwillbe$110,anda25%chanceitwillbe$80Table10.1ProbabilityDistributionofReturnsforB

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IFigure10.3ProbabilityDistributionofReturnsforB

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IExpectedReturnExpected(Mean)ReturnCalculatedasaweightedaverageofthepossiblereturns,wheretheweightscorrespondtotheprobabilities.VarianceandStandardDeviation(1of2)VarianceTheexpectedsquareddeviationfromthemeanStandardDeviationThesquarerootofthevarianceBotharemeasuresoftheriskofaprobabilitydistributionVarianceandStandardDeviation(2of2)ForB

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I,thevarianceandstandarddeviationareInfinance,thestandarddeviationofareturnisalsoreferredtoasitsvolatilityThestandarddeviationiseasiertointerpretbecauseitisinthesameunitsasthereturnsthemselvesTextbookExample10.1(1of2)CalculatingtheExpectedReturnandVolatilityProblemSupposeA

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Cstockisequallylikelytohavea45%returnorareturn.Whatareitsexpectedreturnandvolatility?TextbookExample10.1(2of2)SolutionFirst,wecalculatetheexpectedreturnbytakingtheprobability-weightedaverageofthepossiblereturns:Then,thevolatilityorstandarddeviationisthesquarerootofthevariance:Tocomputethevolatility,wefirstdeterminethevariance:AlternativeExample10.1(1of2)ProblemT

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Ustockishasthefollowingprobabilitydistribution:ProbabilityReturn.258%.5510%.2012%Whatareitsexpectedreturnandstandarddeviation?AlternativeExample10.1(2of2)SolutionExpectedReturn

StandardDeviationFigure10.4ProbabilityDistributionsforB

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CReturns10.3HistoricalReturnsofStocksandBonds(1of4)ComputingHistoricalReturnsRealizedReturnThereturnthatactuallyoccursoveraparticulartimeperiod10.3HistoricalReturnsofStocksandBonds(2of4)ComputingHistoricalReturnsIfyouholdthestockbeyondthedateofthefirstdividend,thentocomputeyourreturnyoumustspecifyhowyouinvestanydividendsyoureceiveintheinterimLet’sassumethatalldividendsareimmediatelyreinvestedandusedtopurchaseadditionalsharesofthesamestockorsecurity10.3HistoricalReturnsofStocksandBonds(3of4)ComputingHistoricalReturnsIfastockpaysdividendsattheendofeachquarter,withrealizedreturnseachquarter,thenitsannualrealizedreturn,iscomputedasfollows:TextbookExample10.2(1of4)RealizedReturnsforMicrosoftStockProblemWhatweretherealizedannualreturnsforMicrosoftstockin2004and2008?TextbookExample10.2(2of4)SolutionWhenwecomputeMicrosoft’sannualreturn,weassumethattheproceedsfromthedividendpaymentwereimmediatelyreinvestedinMicrosoftstock.Thatway,thereturncorrespondstoremainingfullyinvestedinMicrosoftovertheentireperiod.TodothatwelookupMicrosoftstockpricedataatthestartandendoftheyear,aswellasatanydividenddates(Yahoo!Financeisagoodsourceforsuchdata;seealsoMyFinancelLaborforadditionalsources).Fromthesedata,wecanconstructthefollowingtable(pricesanddividendsin$/share):TextbookExample10.2(3of4)DatePriceDividendReturnDatePrice($)DividendReturn12/31/1327.37BlankBlank12/31/0735.06BlankBlank8/23/0427.240.08Negative0.18%2/19/0828.170.11Negative20.56%.11forwardslash15forwardslash04power627.393.0811.86%5/31/0827.320.116.11%12/31/0426.72BlankNegative2.45%.8/19/0819.620.11Negative7.89%.BlankBlankBlankBlank11/18/0819.440.13Negative27.71%BlankBlankBlankBlank12/31/08BlankBlankNegative0.92%.ThereturnfromDecember31,2003,untilAugust23,2004,isequaltoTextbookExample10.2(4of4)Therestofthereturnsinthetablearecomputedsimilarly.WethencalculatetheannualreturnsusingEquation10.5:AlternativeExample10.2(1of4)ProblemWhatweretherealizedannualreturnsforN

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Gstockin2012andin2018?AlternativeExample10.2(2of4)SolutionFirst,welookupstockpricedataforN

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Gatthestartandendoftheyear,aswellasdividenddates.Fromthesedata,weconstructthefollowingtable:DatePrice($)Dividend($)ReturnDatePrice($)Dividend($)Return12/31/201158.69BlankBlank12/31/20176.730Blank1/31/201261.440.265.13%3/31/20185.720Negative15.01%.4/30/201263.940.264.49%6/30/20184.810Negative15.91%.7/31/201248.50.26Negative23.74%.9/30/20185.208.11%10/31/201254.880.2913.75%12/31/20182.290Negative55.96%.12/31/201253.31BlankNegative2.86%.blankBlankBlank

blankAlternativeExample10.2(3of4)SolutionWecomputeeachperiod’sreturnusingEquation10.4.Forexample,thereturnfromDecember31,2011,toJanuary31,2012,isWethendetermineannualreturnsusingEq.10.5:AlternativeExample10.2(4of4)SolutionNotethat,sinceN

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Gdidnotpaydividendsduring2018,thereturncanalsobecomputedasfollows:Table10.2RealizedReturnfortheS&P500,Microsoft,andTreasuryBills,2005–2017YearEndS&P500IndexDividendsPaid*S&P500RealizedReturnedMicrosoftRealizedReturn1-MonthT-BillReturn20041211.92BlankBlankBlankBlank20051248.2923.154.9%Negative0.9%.3%20061418.327.1615.8%15.8%4.8%20071468.3627.865.5%20.8%4.7%2008903.2521.85Negative37%.Negative44.4%.1.5%20091115.127.1926.5%60.5%0.1%20101257.6425.4415.1%Negative6.5%.0.1%20111257.6126.592.1%Negative4.5%.0%20121426.1932.6716%5.8%0.1%20131848.3639.7532.4%44.3%0%20142058.942.4713.7%27.6%0%20152043.9443.45

1.4%22.7%0%20162238.8349.5612%15.1%0.2%20172673.6153.9921.8%40.7%0.8%Totaldividendspaidbythe500stocksintheportfolio,basedonthenumberofsharesofeachstockintheindex,adjusteduntiltheendtheyear,assumingtheywerereinvestedwhenpaid.Source:Standard&Poor’s,MicrosoftandU.S.TreasuryData10.3HistoricalReturnsofStocksandBonds(4of4)ComputingHistoricalReturnsBycountingthenumberoftimesarealizedreturnfallswithinaparticularrange,wecanestimatetheunderlyingprobabilitydistributionEmpiricalDistributionWhentheprobabilitydistributionisplottedusinghistoricaldataFigure10.5TheEmpiricalDistributionofAnnualReturnsforU.S.LargeStocks(S&P500),SmallStocks,CorporateBonds,andTreasuryBills,1926–2017Table10.3AverageAnnualReturnsforU.S.SmallStocks,LargeStocks(S&P500),CorporateBonds,andTreasuryBills,1926–2017InvestmentAverageAnnualReturnSmallstocks18.7%S&P50012.0%Corporatebonds6.2%Treasurybills3.4%AverageAnnualReturnWhereistherealizedreturnofasecurityinyeart,fortheyears1throughTUsingthedatafromTable10.2,theaverageannualreturnfortheS&P500from2005to2017isasfollows:TheVarianceandVolatilityofReturnsVarianceEstimateUsingRealizedReturnsTheestimateofthestandarddeviationisthesquarerootofthevarianceTextbookExample10.3(1of2)ComputingaHistoricalVolatilityProblemUsingthedatafromTable10.2,whatarethevarianceandvolatilityoftheS&P500’sreturnsfortheyears2005–2017?TextbookExample10.3(2of2)SolutionEarlier,wecalculatedtheaverageannualreturnsoftheS&P500duringthisperiodtobe10.0%.Therefore,AlternativeExample10.3(1of3)ProblemUsingthedatafromTable10.2,whatarethevarianceandstandarddeviationofMicrosoft’sreturnsfrom2008to2017?AlternativeExample10.3(2of3)Solution:First,weneedtocalculatetheaveragereturnforMicrosoft’soverthattimeperiod,usingEquation10.6:AlternativeExample10.3(3of3)Next,wecalculatethevarianceusingEquation10.7:ThestandarddeviationisthereforeTable10.4VolatilityofU.S.SmallStocks,LargeStocks(S&P500),CorporateBonds,andTreasuryBills,1926–2017InvestmentReturnVolatility(StandardDeviation)Smallstocks39.2%S&P50019.8%Corporatebonds6.4%Treasurybills3.1%EstimationError:UsingPastReturnstoPredicttheFuture(1of2)Wecanuseasecurity’shistoricalaveragereturntoestimateitsactualexpectedreturn.However,theaveragereturnisjustanestimateoftheexpectedreturn.StandardErrorAstatisticalmeasureofthedegreeofestimationerrorEstimationError:UsingPastReturnstoPredicttheFuture(2of2)StandardErroroftheEstimateoftheExpectedReturn95%ConfidenceIntervalFortheS&P500(1926–2017)Orarangefrom7.9%to16.1%TextbookExample10.4(1of2)TheAccuracyofExpectedReturnEstimatesProblemUsingthereturnsfortheS&P500from2005to2017only(seeTable10.2),whatisthe95%confidenceintervalyouwouldestimatefortheS&P500’sexpectedreturn?TextbookExample10.4(2of2)SolutionEarlier,wecalculatedtheaveragereturnfortheS&P500duringthisperiodtobe10.0%,withavolatilityof17.0%(seeExample10.3).Thestandarderrorofourestimateoftheexpectedreturnisandthe95%confidenceintervalisorfrom0.6%to19.4%.Asthisexampleshows,withonlyafewyearsofdata,wecannotreliablyestimateexpectedreturnsforstocks!AlternativeExample10.4(1of2)Problem:UsingthedatafromAlternativeExample10.3,whatisthe95%confidenceintervalyouwouldestimateforMicrosoft’sexpectedreturn?AlternativeExample10.4(2of2)Solution:The95%confidenceintervalforMicrosoft’sexpectedreturniscalculatedasfollows:Orarangefrom10.4TheHistoricalTradeoffBetweenRiskandReturnTheReturnsofLargePortfoliosExcessReturnsThedifferencebetweentheaveragereturnforaninvestmentandtheaveragereturnforT-BillsTable10.5VolatilityVersusExcessReturnofU.S.SmallStocks,LargeStocks(S&P500),CorporateBonds,andTreasuryBills,1926–2017InvestmentReturnVolatility(StandardDeviation)ExcessReturn(AverageReturninExcessofTreasuryBills)Smallstocks39.2%15.3%S&P50019.8%8.6%Corporatebonds6.4%2.9%Treasurybills(30-day)3.1%0.0%Figure10.6TheHistoricalTradeoffBetweenRiskandReturninLargePortfoliosSource:C

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P,MorganStanleyCapitalInternationalTheReturnsofIndividualStocksIsthereapositiverelationshipbetweenvolatilityandaveragereturnsforindividualstocks?Asshownonthenextslide,thereisnopreciserelationshipbetweenvolatilityandaveragereturnforindividualstocksLargerstockstendtohavelowervolatilitythansmallerstocksAllstockstendtohavehigherriskandlowerreturnsthanlargeportfoliosFigure10.7HistoricalVolatilityandReturnfor500IndividualStocks,RankedAnnuallybySizeSource:C

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P10.5CommonVersusIndependentRiskCommonRiskRiskthatisperfectlycorrelatedRiskthataffectsallsecuritiesIndependentRiskRiskthatisuncorrelatedRiskthataffectsaparticularsecurityDiversificationTheaveragingoutofindependentrisksinalargeportfolioTextbookExample10.5(1of3)DiversificationandGamblingProblemRoulettewheelsaretypicallymarkedwiththenumbers1through36plus0and00.Eachoftheseoutcomesisequallylikelyeverytimethewheelisspun.Ifyouplaceabetonanyonenumberandarecorrect,thepayoffisthatis,ifyoubet$1,youwillreceive$36ifyouwin($35plusyouroriginal$1)andnothingifyoulose.Supposeyouplacea$1betonyourfavoritenumber.Whatisthecasino’sexpectedprofit?Whatisthestandarddeviationofthisprofitforasinglebet?Suppose9millionsimilarbetsareplacedthroughoutthecasinoinatypicalmonth.Whatisthestandarddeviationofthecasino’saveragerevenuesperdollarbeteachmonth?TextbookExample10.5(2of3)SolutionBecausethereare38numbersonthewheel,theoddsofwinningareThecasinoloses$35ifyouwin,andmakes$1ifyoulose.Therefore,usingEquation10.1,thecasino’sexpectedprofitisThatis,foreachdollarbet,thecasinoearns5.26centsonaverage.Forasinglebet,wecalculatethestandarddeviationofthisprofitusingEquation10.2asTextbookExample10.5(3of3)Thisstandarddeviationisquitelargerelativetothemagnitudeoftheprofits.Butifmanysuchbetsareplaced,theriskwillbediversified.UsingEquation10.8,thestandarddeviationofthecasino’saveragerevenuesperdollarbet(i.e.,thestandarderroroftheirpayoff)isonlyInotherwords,bythesamelogicasEquation10.9,thereisroughly95%chancethecasino’sprofitperdollarbetwillbeintheintervalGiven$9millioninbetsplaced,thecasino’smonthlyprofitswillalmostalwaysbebetween$439,000and$508,000,whichisverylittlerisk.Thekeyassumption,ofcourse,isthateachbetisseparatesothattheiroutcomesareindependentofeachother.Ifthe$9millionwereplacedinasinglebet,thecasino’sriskwouldbelarge—losingifthebetwins.Forthisreason,casinosoftenimposelimitsontheamountofanyindividualbet.10.6DiversificationinStockPortfolios(1of7)Firm-SpecificVersusSystematicRiskFirmSpecificNewsGoodorbadnewsaboutanindividualcompanyMarket-WideNewsNewsthataffectsallstocks,suchasnewsabouttheeconomy10.6DiversificationinStockPortfolios(2of7)Firm-SpecificVersusSystematicRiskIndependentRisksDuetofirm-specificnewsAlsoknownasFirm-SpecificRiskIdiosyncraticRiskUniqueRiskUnsystematicRiskDiversifiableRisk10.6DiversificationinStockPortfolios(3of7)Firm-SpecificVersusSystematicRiskCommonRisksDuetomarket-widenewsAlsoknownasSystematicRiskUndiversifiableRiskMarketRisk10.6DiversificationinStockPortfolios(4of7)Firm-SpecificVersusSystematicRiskWhenmanystocksarecombinedinalargeportfolio,thefirm-specificrisksforeachstockwillaverageoutandbediversifiedThesystematicrisk,however,willaffectallfirmsandwillnotbediversified10.6DiversificationinStockPortfolios(5of7)Firm-SpecificVersusSystematicRiskConsidertwotypesoffirms:TypeSfirmsareaffectedonlybysystematicriskThereisa50%chancetheeconomywillbestrongandtypeSstockswillearnareturnof40%Thereisa50%chancetheeconomywillbeweakandtheirreturnwillbeBecauseallthesefirmsfacethesamesystematicrisk,holdingalargeportfoliooftypeSfirmswillnotdiversifytherisk10.6DiversificationinStockPortfolios(6of7)Firm-SpecificVersusSystematicRiskConsidertwotypesoffirms:TypeIfirmsareaffectedonlybyfirm-specificrisksTheirreturnsareequallylikelytobe35%orbasedonfactorsspecifictoeachfirm’slocalmarketBecausetheserisksarefirmspecific,ifweholdaportfolioofthestocksofmanytypeIfirms,theriskisdiversified10.6DiversificationinStockPortfolios(7of7)Firm-SpecificVersusSystematicRiskActualfirmsareaffectedbybothmarket-widerisksandfirm-specificrisksWhenfirmscarrybothtypesofrisk,onlytheunsystematicriskwillbediversifiedwhenmanyfirm’sstocksarecombinedintoaportfolioThevolatilitywillthereforedeclineuntilonlythesystematicriskremainsFigure10.8VolatilityofPortfoliosofTypeSandIStocksTextbookExample10.6(1of2)PortfolioVolatilityProblemWhatisthevolatilityoftheaveragereturnoftentypeSfirms?WhatisthevolatilityoftheaveragereturnoftentypeIfirms?TextbookExample10.6(2of2)SolutionTypeSfirmshaveequallylikelyreturnsof40%or−20%.TheirexpectedreturnisBecausealltypeSfirmshavehighorlowreturnsatthesametime,theaveragereturnoftentypeSfirmsisalso40%or−20%.Thus,ithasthesamevolatilityof30%,asshowninFigure10.8.TypeIfirmshaveequallylikelyreturnsof35%or−25%.TheirexpectedreturnisBecausethereturnsoftypeIfirmsareindependent,usingEquation10.8,theaveragereturnof10typeIfirmshasvolatilityofasshowninFigure10.8.NoArbitrageandtheRiskPremium(1of4)Theriskpremiumfordiversifiableriskiszero,soinvestorsarenotcompensatedforholdingfirm-specificriskIfthediversifiableriskofstockswerecompensatedwithanadditionalriskpremium,theninvestorscouldbuythestocks,earntheadditionalpremium,andsimultaneouslydiversifyandeliminatetheriskNoArbitrageandtheRiskPremium(2of4)Bydoingso,investorscouldearnanadditionalpremiumwithouttakingonadditionalriskThisopportunitytoearnsomethingfornothingwouldquicklybeexploitedandeliminatedBecauseinvestorscaneliminatefirm-specificrisk“forfree”bydiversifyingtheirportfolios,theywillnotrequireorearnarewardorriskpremiumforholdingitNoArbitrageandtheRiskPremium(3of4)TheriskpremiumofasecurityisdeterminedbyitssystematicriskanddoesnotdependonitsdiversifiableriskThisimpliesthatastock’svolatility,whichisameasureoftotalrisk(thatis,systematicriskplusdiversifiablerisk),isnotespeciallyusefulindeterminingtheriskpremiumthatinvestorswillearnNoArbitrageandtheRiskPremium(4of4)StandarddeviationisnotanappropriatemeasureofriskforanindividualsecurityThereshouldbenoclearrelationshipbetweenvolatilityandaveragereturnsforindividualsecuritiesConsequently,toestimateasecurity’sexpectedreturn,weneedtofindameasureofasecurity’ssystematicriskTextbookExample10.7(1of2)DiversifiableVersusSystematicRiskProblemWhichofthefollowingrisksofastockarelikelytobefirm-specific,diversifiablerisks,andwhicharelikelytobesystematicrisks?Whichriskswillaffecttheriskpremiumthatinvestorswilldemand?a.TheriskthatthefounderandC

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Oretiresb.Theriskthatoilpricesrise,increasingproductioncostsc.Theriskthataproductdesignisfaultyandtheproductmustberecalledd.Theriskthattheeconomyslows,reducingdemandforthefirm’sproductsTextbookExample10.7(2of2)SolutionBecauseoilpricesandthehealthoftheeconomyaffectallstocks,risks(b)and(d)aresystematicrisks.Theserisksarenotdiversifiedinalargeportfolio,andsowillaffectthepremiumthatinvestorsrequiretoinvestinastock.Risks(a)and(c)arefirm-specificrisks,andsoarediversifiable.Whiletheserisksshouldbeconsideredwhenestimatingafirm’sfuturecashflows,theywillnotaffecttheriskpremiumthatinvestorswillrequireand,therefore,willnotaffectafirm’scostofcapital.10.7MeasuringSystematicRisk(1of4)Tomeasurethesystematicriskofastock,determinehowmuchofthevariabilityofitsreturnisduetosystematicriskversusunsystematicriskTodeterminehowsensitiveastockistosystematicrisk,lookattheaveragechangeinthereturnforeach1%changeinthereturnofaportfoliothatfluctuatessolelyduetosystematicrisk10.7MeasuringSystematicRisk(2of4)EfficientPortfolioAportfoliothatcontainsonlysystematicriskThereisnowaytoreducethevolatilityoftheportfoliowithoutloweringitsexpectedreturnMarketPortfolioAnefficientportfoliothatcontainsallsharesandsecuritiesinthemarketTheS&P500isoftenusedasaproxyforthemarketportfolio10.7MeasuringSystematicRisk(3of4)SensitivitytoSystematicRisk:BetaTheexpectedpercentchangeintheexcessreturnofasecurityfora1%changein

theexcessreturnofthemarketportfolioBetadiffersfromvolatility.Volatilitymeasurestotalrisk(systematicplusunsystematicrisk),whilebetaisameasureofonlysystematicriskTextbookExample10.8(1of2)EstimatingBetaProblemSupposethemarketportfoliotendstoincreaseby47%whentheeconomyisstronganddeclineby25%whentheeconomyisweak.WhatisthebetaofatypeSfirmwhosereturnis40%onaveragewhentheeconomyisstrongandwhentheeconomyisweak?WhatisthebetaofatypeIfirm

thatbearsonlyidiosyncratic,firm-specificrisk?TextbookExample10.8(2of2)SolutionThesystematicriskofthestrengthoftheeconomyproducesachangeinthereturnofthemarketportfolio.ThetypeSfirm’sreturnchangesbyonaverage.Thusthefirm’sbetaisThatis,each1%changeinthereturnofthemarketportfolioleadstoa0.833%changeinthetypeSfirm’sreturnonaverage.ThereturnofatypeIfirmhasonlyfirm-specificrisk,however,andsoisnotaffectedbythestrengthoftheeconomy.Itsreturnisaffectedonlybyfactorsspecifictothefirm.Becauseitwillhavethesameexceptedreturn,whethertheeconomyisstrongorweak,AlternativeExample10.8(1of3)ProblemSupposethemarketportfoliotendstoincreaseby52%whentheeconomyisstronganddeclineby21%whentheeconomyisweak.WhatisthebetaofatypeSfirmwhosereturnis55%onaveragewhentheeconomyisstrongandwhentheeconomyisweak?WhatisthebetaofatypeIfirmthatbearsonlyidiosyncratic,firm-specificrisk?AlternativeExample10.8(2of3)SolutionThesystematicriskofthestrengthoftheeconomyproducesachangeinthereturnofthemarketportfolio.ThetypeSfirm’sreturnchangesby79%onaverage.Thusthefirm’sbetaisThatis,each1%changeinthereturnofthemarketportfolioleadstoa1.082%changeinthetypeSfirm’sreturnonaverage.AlternativeExample10.8(3of3)SolutionThereturnofatypeIfirmhasonlyfirm-specificrisk,however,andsoisnotaffectedbythestrengthoftheeconomy.Itsreturnisaffectedonlybyfactorsspecifictothefirm.Becauseitwillhavethesameexpectedreturn,whethertheeconomyisstrongorweak,Table10.6BetaswithRespecttotheS&P500forIndividualStocks(BasedonMonthlyDatafor2013–2018)(1of4)CompanyTickerIndustryEquityBetaEdisonInternationalE

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XUtilities0.15TysonFoodsT

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NPackagedFoods0.19NewmontMiningN

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MGold0.31TheHersheyCompanyH

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YPackagedFoods0.33CloroxC

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XHouseholdProducts0.34WalmartW

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TSuperstores0.55Procter&GambleP

GHouseholdProducts0.55McDonald'sM

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DRestaurants0.63NikeN

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EFootwear0.64PepsicoP

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PSoftDrinks0.68Williams-SonomaW

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MHomeFurnishingRetail0.71Coca-ColaK

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JPharmaceuticals0.73Table10.6BetaswithRespecttotheS&P500forIndividualStocks(BasedonMonthlyDatafor2013–2018)(2of4)CompanyTickerIndustryEquityBetaMacy'sMDepartmentStores0.75MolsonCoorsBrewingT

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PBrewers0.78StarbucksS

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XRestaurants0.80FootLockerF

LApparelRetail0.83Harley-DavidsonH

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GMotorcycleManufacturers0.88PfizerP

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EPharmaceuticals0.89SproutsFarmersMarketS

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MFoodRetail0.8