Choose two companies that operate in different sectors of the economy. The companies should be quoted on the London Stock Exchange. custom essay

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1. Using monthly data, calculate the beta values for each company.
– You will need monthly price data for the companies? shares and monthly data on the FTSE100 index, which should be used as a proxy for the market portfolio. Use data for a five year period, say 1st January 2007 to 31st December 2011.
– Data is available at: Look up the companies in the Get Quotes box and FTSE100 index in the Market Summary (Europe) section, and click the link to Historical Data.
? Remember that you will need to calculate monthly returns for share prices and the FTSE. For share prices use the adjusted closing prices (Adj close* column) as this includes the effects of share splits, dividends etc.
(30 marks)

2. Compare and comment on the beta values for the two companies.
(20 marks)

3. Using the beta values, calculate the required rate of return for each company for investment projects that are to be financed by new equity issues.
(Hint: you will need to determine a risk-free rate of return. This can be obtained from past LIBOR or Treasury Bill rates. In calculating this rate, explain your assumptions.)
(20 marks)

4. Critically discuss the applicability of CAPM to the valuation of the companies? returns and as a tool for appraising investment.
(30 marks)

In your assignment you should include all supporting calculations, spreadsheets and graphs.

check feedback sheet i will provide you to cover each point and apply proper weight age of words or material to the given percentage marks for each question or section.

Note: to place original and quality references. and should be Harvard style.

Draw diagrams and charts where necessary.

Analyze critically where necessary

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