finance response

Response due by 8pm. Please respond to these 2 student's post. At least one paragraph

You are expected to respond with value added comments to at least two of your classmates as well as to your instructor.

Post 1                                  

1.  What are the betas listed for these companies?

Macys - .67

Nordstrom - .75

2.  Macys – 20,000 investment

Nordstrom – 20,000 investment

20,000/40,000 = .5

(.5 * .67) + (.5 * .75) = .335 + .375 = .71

3. 

Macys – 14,000 (70% of 20,000) investment 14,000/20,000 = .7

Nordstrom – 6,000 (30% of 20,000) investment        6,000/20,000 = .3

(.7 * .67) + (.3 * .75) = .469 + .225 = .694

4. 

Current 10 Year Yield – 2.38

Macys – 2.38 + (.67 * 5) = 5.73%

Nordstrom – 2.38 + (.75 * 5) = 6.13%

5. 

The 52 Week change listed in historical statistics for Macys is -17.60% and for Nordstrom is listed -9.47.  I’m not too sure on how to explain this because I am sure somewhere, my answers are incorrect.

POST 2

Sony and Microsoft

1) Sony Beta: 1.89; Microsoft Beta: 1.39

2) Portfolio Beta = (.5*1.89)+(.5*1.39)=1.64

3) Portfolio Beta = (.7*1.89)+(.3*1.39)= 1.74

4)

Sony Required Return = 2.411% + (1.89*5%)=11.861%

Microsoft Required Return = 2.411% + (1.39*5%)=9.361%

(When I searched for the current yield on 10-year treasury securities, I was redirected to http://data.cnbc.com/quotes/US10Y)

5) Sony shows a 52-week change of 52.96%

Microsoft shows a 52-week change of 28.87%

Both of these are well above the required return.  They differ from the estimated required return because the latter is merely the forecasted rate, while the former has already transpired.  

The large difference between required return and 52 week change could imply that investors are not receiving fair pay based on the success of the issuer of the stock.  Alternatively, this difference may appear more significant than reality because the required rate of return formula fails to account for factors such as smoothing techniques.  Due to the multi-year cycle that each company undergoes regarding console sales, I am inclined to believe that this is the case.