Intermediate Financial Management
BA – 316
Project Part 1
Identify a company Look at financial statements (from previous years, at least one year) Conduct ratio analysis. Use Dupont equation from results..
Make a financial statement Organize and Analyze Statements Make recommendations – how will you improve the forecast Strengths, weaknesses, etc. Part 2 Forecasting – Statistical Analysis Standard Goal of 10% Determine location of new funds (borrowing, issuance of stocks, capital)
½ page to 1 page proposal before starting project
Chapter 2 Homework – (5 , 9) & Mini Case (a – i), (#12 for 08/31) ** Mini Case (j – m) for 09/12
Correlation Coefficient -> Degree of variability
Possibilities of economy on investments Probability Rate of Return A
Pessimistic .25 13% Likely .50 15% Optimistic .25 17%
Realized Rate of Return & Correlation Coefficient
***Calculate Correlation of Coefficient for these stocks
Stocks X, Y, and Z Year 1 Year 2 Year 3 Year 4 Year 5 Avg σ
X 8% 10% 12% 14% 16% 12% 3.16
Y 16% 14% 12% 10% 8% 12% 3.16
Z 8% 10% 12% 14% 16% 12% 3.16
Correlation – A statistical measure of the relationship between the rates of return of two assets
Correlation Coefficient – A statistical measure of the degree of the relationship between the rates of return of two assets.
Positively Correlated – Describes two rates of return that move in the same direction
Negatively Correlated - Describes two rates of return that move in opposite directions
ρ= t=1n(ri,t-ri,avg)(rj,t - rj,avg)t=1nri,t-ri,avg2t=1nrj,t - rj,avg2
Year r ̅x ry rz
1 8% 16% 8% Rxy =
2 10 14 10
3 12 12 12 Rxz =
4 14 10 14
5 16 8 16
Diversifiable Risk Company-specific risk Unsystematic risk
S&P, NASDAQ, Dow Jones
Non-Diversifiable Risk Market Risk Systematic Risk
The risk of a portfolio depends on the correlation coefficient of returns
Project Part 1
Identify a company Look at financial statements (from previous years, at least one year) Conduct ratio analysis. Use Dupont equation from results..
Make a financial statement Organize and Analyze Statements Make recommendations – how will you improve the forecast Strengths, weaknesses, etc. Part 2 Forecasting – Statistical Analysis Standard Goal of 10% Determine location of new funds (borrowing, issuance of stocks, capital)
½ page to 1 page proposal before starting project
Chapter 2 Homework – (5 , 9) & Mini Case (a – i), (#12 for 08/31) ** Mini Case (j – m) for 09/12
Correlation Coefficient -> Degree of variability
Possibilities of economy on investments Probability Rate of Return A
Pessimistic .25 13% Likely .50 15% Optimistic .25 17%
Realized Rate of Return & Correlation Coefficient
***Calculate Correlation of Coefficient for these stocks
Stocks X, Y, and Z Year 1 Year 2 Year 3 Year 4 Year 5 Avg σ
X 8% 10% 12% 14% 16% 12% 3.16
Y 16% 14% 12% 10% 8% 12% 3.16
Z 8% 10% 12% 14% 16% 12% 3.16
Correlation – A statistical measure of the relationship between the rates of return of two assets
Correlation Coefficient – A statistical measure of the degree of the relationship between the rates of return of two assets.
Positively Correlated – Describes two rates of return that move in the same direction
Negatively Correlated - Describes two rates of return that move in opposite directions
ρ= t=1n(ri,t-ri,avg)(rj,t - rj,avg)t=1nri,t-ri,avg2t=1nrj,t - rj,avg2
Year r ̅x ry rz
1 8% 16% 8% Rxy =
2 10 14 10
3 12 12 12 Rxz =
4 14 10 14
5 16 8 16
Diversifiable Risk Company-specific risk Unsystematic risk
S&P, NASDAQ, Dow Jones
Non-Diversifiable Risk Market Risk Systematic Risk
The risk of a portfolio depends on the correlation coefficient of returns