Question

1. 1. Download the historical stock price of your company (intel) and use them to calculate returns. Embed an Excel Spreadsheet showing the stock price and returns with only few lines showing.
   2. Download the historical price of the S&P 500 index to use as an approximation of market performance. Use the prices to find returns. Embed an Excel Spreadsheet showing the stock price and returns with only few lines showing.
   3. Find the slope of a regression in which returns of the company are the dependent variable and S&P 500 index returns are the independent variable.
2. Find R_f. What is the risk-free rate based on? State the source of R_f
3. You can assume that Market Risk Premium is 6.1%. Using the information above, calculate the cost of equity using the CAPM.

Answer 1

Let us assume, stock price for stock Alkem laboratories. We have assumed the historical stock price for 4 years.

Stock -	Alkem Laboratories
Year	Stock price
2017	2700	-100	Return =	(Current Price - Initial Price) / Initial Price
2018	2600	800		(3500-2700) / 2700
2019	3400	100		29.63%
2020	3500	800
S&P index (x)
Year	Price		Return =	(Current Price - Initial Price) / Initial Price
2017	2673.61	-166.76		(3453.39-2673.61) / 2673.61
2018	2506.85	723.93		29.17%
2019	3230.78	222.61
2020	3453.39	779.78
Slope	1.028122		Slope	(y1-y2)/(x1-x2)

Using, CAPM model we can calculate the risk free rate ir Rf.

S&P 500 return cn be considered as market return. however this return is for 3 years we can calculate return for one year - 29.17 / 3 = 9.72%

Market Return = Risk Free rate + market risk premium

9.72 % = Rf + 6.1%

Therefore, Risk Free rate = 3.62%