Using the data shown in the table below that contains historical monthly prices and dividends (paid at the end of themonth) for Ford Motor Company stock (Ticker: F) from August 1994 to August 1998, compute the: a. Average monthly return over this period is --%. (Round to two decimal places.) b. Monthly volatility (or standard deviation) over this period. (Round to two decimal places.) c. compute 95% confidence interval of the estimate of the average monthly return. Date Stock Price Dividend Return 1+Rt Aug-94 $29.250 $0.000 Sep-94 $27.750 $0.000 -5.13% 0.949 Oct-94 $29.500 $0.260 7.24% 1.072 Nov-94 $27.125 $0.000 -8.05% 0.919 Dec-94 $27.875 $0.000 2.76% 1.028 Jan-95 $25.250 $0.260 -8.48% 0.915 Feb-95 $26.125 $0.000 3.47% 1.035 Mar-95 $26.875 $0.000 2.87% 1.029 Apr-95 $27.125 $0.310 2.08% 1.021 May-95 $29.250 $0.000 7.83% 1.078 Jun-95 $29.750 $0.000 1.71% 1.017 Jul-95 $29.000 $0.310 -1.48% 0.985 Aug-95 $30.750 $0.000 6.03% 1.06 Sep-95 $31.125 $0.000 1.22% 1.012 Oct-95 $28.750 $0.350 -6.51% 0.935 Nov-95 $28.250 $0.000 -1.74% 0.983 Dec-95 $28.875 $0.000 2.21% 1.022 Jan-96 $29.500 $0.350 3.38% 1.034 Feb-96 $31.250 $0.000 5.93% 1.059 Mar-96 $34.375 $0.000 10.00% 1.1 Apr-96 $35.875 $0.350 5.38% 1.054 May-96 $36.500 $0.000 1.74% 1.017 Jun-96 $32.375 $0.000 -11.30% 0.887 Jul-96 $32.375 $0.385 1.19% 1.012 Aug-96 $33.500 $0.000 3.47% 1.035 Sep-96 $31.250 $0.000 -6.72% 0.933 Oct-96 $31.250 $0.385 1.23% 1.012 Nov-96 $32.750 $0.000 4.80% 1.048 Dec-96 $32.250 $0.000 -1.53% 0.985 Jan-97 $32.125 $0.385 0.81% 1.008 Feb-97 $32.875 $0.000 2.33% 1.023 Mar-97 $31.375 $0.000 -4.56% 0.954 Apr-97 $34.750 $0.420 12.10% 1.121 May-97 $37.500 $0.000 7.91% 1.079 Jun-97 $38.000 $0.000 1.33% 1.013 Jul-97 $40.875 $0.420 8.67% 1.087 Aug-97 $43.000 $0.000 5.20% 1.052 Sep-97 $45.125 $0.000 4.94% 1.049 Oct-97 $43.688 $0.420 -2.25% 0.977 Nov-97 $43.000 $0.000 -1.57% 0.984 Dec-97 $48.563 $0.000 12.94% 1.129 Jan-98 $51.000 $0.420 5.88% 1.059 Feb-98 $56.563 $0.000 10.91% 1.109 Mar-98 $64.813 $0.000 14.59% 1.146 Apr-98 $45.813 $23.680 7.22% 1.072 May-98 $51.875 $0.000 13.23% 1.132 Jun-98 $59.000 $0.000 13.73% 1.137 Jul-98 $57.000 $0.420 -2.68% 0.973 Aug-98 $44.625 $0.000 -21.71% 0.783
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Using the data shown in the table below that contains historical monthly prices and dividends (paid at the end of themonth) for Ford Motor Company stock (Ticker: F) from August 1994 to August 1998, compute the:
a. Average monthly return over this period is --%. (Round to two decimal places.)
b. Monthly volatility (or standard deviation) over this period. (Round to two decimal places.)
c. compute 95% confidence interval of the estimate of the average monthly return.
Date Stock Price Dividend Return 1+Rt
Aug-94 $29.250 $0.000
Sep-94 $27.750 $0.000 -5.13% 0.949
Oct-94 $29.500 $0.260 7.24% 1.072
Nov-94 $27.125 $0.000 -8.05% 0.919
Dec-94 $27.875 $0.000 2.76% 1.028
Jan-95 $25.250 $0.260 -8.48% 0.915
Feb-95 $26.125 $0.000 3.47% 1.035
Mar-95 $26.875 $0.000 2.87% 1.029
Apr-95 $27.125 $0.310 2.08% 1.021
May-95 $29.250 $0.000 7.83% 1.078
Jun-95 $29.750 $0.000 1.71% 1.017
Jul-95 $29.000 $0.310 -1.48% 0.985
Aug-95 $30.750 $0.000 6.03% 1.06
Sep-95 $31.125 $0.000 1.22% 1.012
Oct-95 $28.750 $0.350 -6.51% 0.935
Nov-95 $28.250 $0.000 -1.74% 0.983
Dec-95 $28.875 $0.000 2.21% 1.022
Jan-96 $29.500 $0.350 3.38% 1.034
Feb-96 $31.250 $0.000 5.93% 1.059
Mar-96 $34.375 $0.000 10.00% 1.1
Apr-96 $35.875 $0.350 5.38% 1.054
May-96 $36.500 $0.000 1.74% 1.017
Jun-96 $32.375 $0.000 -11.30% 0.887
Jul-96 $32.375 $0.385 1.19% 1.012
Aug-96 $33.500 $0.000 3.47% 1.035
Sep-96 $31.250 $0.000 -6.72% 0.933
Oct-96 $31.250 $0.385 1.23% 1.012
Nov-96 $32.750 $0.000 4.80% 1.048
Dec-96 $32.250 $0.000 -1.53% 0.985
Jan-97 $32.125 $0.385 0.81% 1.008
Feb-97 $32.875 $0.000 2.33% 1.023
Mar-97 $31.375 $0.000 -4.56% 0.954
Apr-97 $34.750 $0.420 12.10% 1.121
May-97 $37.500 $0.000 7.91% 1.079
Jun-97 $38.000 $0.000 1.33% 1.013
Jul-97 $40.875 $0.420 8.67% 1.087
Aug-97 $43.000 $0.000 5.20% 1.052
Sep-97 $45.125 $0.000 4.94% 1.049
Oct-97 $43.688 $0.420 -2.25% 0.977
Nov-97 $43.000 $0.000 -1.57% 0.984
Dec-97 $48.563 $0.000 12.94% 1.129
Jan-98 $51.000 $0.420 5.88% 1.059
Feb-98 $56.563 $0.000 10.91% 1.109
Mar-98 $64.813 $0.000 14.59% 1.146
Apr-98 $45.813 $23.680 7.22% 1.072
May-98 $51.875 $0.000 13.23% 1.132
Jun-98 $59.000 $0.000 13.73% 1.137
Jul-98 $57.000 $0.420 -2.68% 0.973
Aug-98 $44.625 $0.000 -21.71% 0.783
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 5 images