For your Module 3 SLP, we will go back to looking at information about the stock price and stock returns of your four companies. Look up the following information about your four companies on Yahoo Finance, Investing.com, Morningstar, or a similar page:
a.The current stock prices
b.The stock prices five years ago
c.The dividend yield for each stock
d.The beta for each stock
e.Look up the current three-month treasury bill rate on Fidelity’s Fixed Income page
Now do the following calculations with this information:
1.Calculate the average annual capital gain or loss (stock price change) over the last five years. Calculate the percentage change from five years ago, and divide by five. For example, if the stock price increased from 50 to 100 in five years, the percentage increase would be 100% and the average annual gain would be 20% (100 divided by 5). Which of these companies has the highest or lowest capital gain?
2.Now estimate the average total return, which is the capital gain plus dividends. If the dividend yield is 2%, then the average total return would be 22% in the example above. Which of these four companies has the highest or lowest total return? Does the order change?
3.Finally, calculate the Treynor Ratio. First, take the total return for each of your four companies and subtract the three-month treasury bill rate (the “risk-free rate”). Then divide this by the beta of each company. This ratio is a measure of the risk-adjusted return of each stock. The higher the return, the higher the Treynor Ratio. But the higher the beta (which is a measure of risk), the lower the Treynor Ratio. Which of your companies has the highest or lowest risk-adjusted return? Does the order change from what you found in 1) and 2) above?
Submit a one-page memo in Word summarizing your findings, and include an Excel file with your data and calculations.
SLP Assignment Expectations
•Answer the assignment questions directly.
•Stay focused on the precise assignment questions. Do not go off on tangents or devote a lot of space to summarizing general background materials.
•For computational problems, make sure to show your work and explain your steps.
•For short answer/short essay questions, make sure to reference your sources of information with both a bibliography and in-text citations. See the Student Guide to Writing a High-Quality Academic Paper, including pages 11-14 on in-text citations. Another resource is the “Writing Style Guide,” which is found under “My Resources” in the TLC Portal.