Question

Directions: Answer the following questions on a separate document. Explain how you reached the answer or show your work if a mathematical calculation is needed, or both.

A. Using the two stocks Nike and Starbucks, identify the Beta for each stock. In your own words, what conclusion can you draw from the stocks’ current and historical beta? If the stock market went up 10% today, what would be the impact on each of your stocks?

B. Using the 2014 financial statements from Nike and Starbucks and the equations, prepare the Historical Average and Standard Deviation for each stock.

Answer 1

Yahoo Finnace - Stock Quote (NKE, SBUX, ^GSPC)- Historical Data (Date Range - 8/9/2015 to 8/9/2018)

NKE: Nike, SBUX: Starbucks, ^GSPC : S&O 500 (Market Return)

Return = ln (S(t+1) / St)) , ln (log) to normalize data.

A. Beta = Covariance ( Market Return, Stock Return) / Variance (Market Return)

Or can be calculated by regression Stock Return as dependent variable and Market Return as independnet variable.

Beta of Nike is increased and of starbucks is decreased. Brta is a measure of undiversified market risk, high Beta means higher market risk. S auch,. Nike market risk is increased where as Starbuck is dcreased.

Low Beta is also used for diversification. Starbucks currently has low beta and can be used for diversification of portfolio to increase return to risk ratio of portfolio.

B.