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- Calculate historical beta and adjusted beta for each stock in your portfolio and the portfolio as a whole, based on the data for 5 years, 3 years and 1 year prior to January 31, 2021. As a hint: see https://corporatefinanceinstitute.com/resources/knowledge/trading-investing/adjusted-beta/ (Links to an external site.) for Adjusted Beta short cut.
- Using the stocks in your initial portfolio, prepare a valuation of each stock and the initial portfolio using zero, constant or variable growth models with a market return at 8% and at 12%. [Note that the growth rate must be less than the required rate of return.] Make sure you list the date of the valuation and the closing share price of your firm’s stock. Each firm’s required rate of return will depend on its beta.
- Is the stock of each of these companies over or undervalued?
- What is the expected return using the CAPM model?
- Map risk-returns relationships for 1 year and 3 year returns to each stock and your portfolio, relative to the benchmark (S&P 500) returns.
- Track your portfolio and companies throughout the term through April 1, 2021, describing the stocks and their performance. Identify any events during the period that may have caused the stocks’ prices to increase or decrease, explaining how these events affect the stocks’ prices.
- Prepare a ratio analysis (liquidity, activity, debt, and profitability), covering 3 years pre-January 31, 2021, 1 year pre-January 31, 2021, and the holding period from February 1, 2021 through April 1, 2021.
- Relate your analysis in (1) and (2) above to your expected returns to each stock and the portfolio as outlined in your Part 1 of the Project