Question

Go to finance.yahoo

1.  and Type in Search Finance box: General Motors… and see that while you do the typing Yahoo provides you with a list of suggested companies with similar names… Please note that the same company may be listed in different stock exchanges and countries with the same or similar names. Please select from the list General Motors Company listed in NYSE with the ticker symbol of GM.

3.    Once you have the information on GM, please make a note of GM’s beta coefficient.

4.    Do the same for Boeing, Amazon, Exxon-Mobil Corporation, Expedia, and GE.

5.    For all 6 companies, you looked at above, make a table showing the name, ticker symbol, beta coefficient, where is it traded, stock price, and the EPS. Date your table as the information you obtained is time-specific.

6.    Explain each company's risk position using their beta coefficients with one line. Which one is the riskiest and which one is the least risky?

7.    How is it possible that we can talk about the risk without standard deviation information for the companies?

8.    Make a portfolio assuming you have $80,000 and decided to invest $20,000 on General Motors, $30,000 on Amazon, $10,000 on Boeing, $7,500 on Exxon Mobil, $2,500 on Expedia, and the rest on GE. Compute the portfolio beta.

9.    Assume that, one month later, you sold your GM stocks with a 10% gain. Assume also that you allocated the proceeds from the sale on GE and Expedia equally. What is the new portfolio beta?

Answer 1

SOLUTION:-

Table with required Content

S No	Company Name	Symbol	Traded at	Stock price	EPS	Beta	PE Ratio	Date	Time (IST)
1	General Moters	GM	NYSE	34.43	6.47	1.65	5.33	7/Jun/17	12:40 Pm
2	Mc Donalds	MCD	NYSE	151.23	5.66	0.79	26.7	7/Jun/17	12:40 Pm
3	Apple Inc	AAPL	NASDAQ	154.45	8.52	1.43	18.12	7/Jun/17	12:40 Pm
4	Exxon Mobile Inc	XOM	NYSE	81.21	2.4	0.65	33.88	7/Jun/17	12:40 Pm
5	Expedia Incorporation	EXPE	NASDAQ	146.87	1.97	1.04	74.55	7/Jun/17	12:40 Pm
6	TravelZoo Inc	TZOO	NASDAQ	10.4	0.53	1.47	19.55	7/Jun/17	12:40 Pm

Total Risk will be considered as sigma, which contains both systematic risk & Un systematic risk

Systematic risk is the risk of market & considered as beta and which can not be eliminated through diversification strategy

Unsystematic risk is company specific & can be eliminated or reduced through diversification strategy

Beta of 1.65 for General Motors is the systematic risk of General Motors is 1.65 times of the market

In the given list of companies, General Motors is risky company as it having highest bete value (1.65)

Computation of portfolio beta

portfolio beta is the weighted average beta of all stocks in that portfolio.

Portfolio beta = (W1*beta1) + (W2*beta2) +..........+(Wn*Beta n)

where W1,W2.......Wn are the weights of n stocks in the portfolio

Beta1, Beta2,.......Beta n are the beta factors of n stocks respectively.

Portfolio beta in Situation1

Company Name	Amount Invested	Weights	Beta	Weighted Beta
General Motors	20000	0.25	1.65	0.41
Mc Donalds	10000	0.13	0.79	0.10
Apple Incorporation	30000	0.38	1.43	0.54
Exxon Mobile corporation	7500	0.09	0.65	0.06
Expedia Incorporation	2500	0.03	1.04	0.03
TravelZoo Incorporation	10000	0.13	1.47	0.18
Total	80000	1.00		1.32

Portfolio beta = 1.32

Situation 2
Company Name	Amount Invested	Weights	Beta	Weighted beta
General Motors	0	0	1.65	0
Mc Donalds	10000	0.12	0.79	0.10
Apple Incorporation	30000	0.37	1.43	0.52
Exxon mobile corporation	7500	0.09	0.65	0.06
Expedia Incorporation	13500	0.16	1.04	0.17
Travel Zoo Incorporation	21000	0.26	1.47	0.38
Total	82000	1.00		1.23

Portfolio beta = 1.23

Sales proveeds of General motors = 20000*110%=22000

Half (11000) invested in expedia Incorporation & Half (11000) invested in Travelzoo Incorporation

THANK YOU, if any queries please leave your valuable comment on comment box.........

If possible then rate the answer as well