Financial Quantitative Methods

Financial Quantitative Methods

Coursework Project: Risk, beta and rate of return within the
CAPM and DGM

The purpose of this project is to conduct an analysis where students use CAPM and DGM to analyse
and calculate the required rate of return, which is widely and empirically used in stock valuation.
In this project assignment, students are required to select a UK/USA stock listed in London/New York
stock Exchanges. The company must have paid out dividend in the last 5 years. The selection should
be confirmed by the instructor. Students can perform this task individually or in pairs. No Groups of
three or more.
Students are to collect daily prices of the stock from Yahoo Finance! along with the relevant market
index (FTSE 100 for LSE and S&P500 for NYSE). Daily returns are to be calculated. The period under
study is 1/1/2012 to the most recent date.
In addition, students are required to collect Dividend data from Yahoo Finance for their company for
the period under study. This is to calculate the (average) historical growth rate (g) which is used in
DGM.
Students will also need to calculate Sustainable growth rate (g) using the formula g = ROE * (1-
Dividend payout ratio). I suggest the following website www.4-traders.com to get ROE and dividend
out ratio for the year 2016/17. You type the name of the company in the Search Box, then click
Financials. A list of fundamental data will come up. You select the appropriate items needed for the
formula.
You are required to conduct an analysis and calculate required rate of return within the CAPM and
DGM frameworks. Students should provide an analysis of beta of their company by calculating it on
an annual basis to look into the trend and explaining it potential determinants. Other variables
included in both models are to be estimated or borrowed from credible data sources.
You are required to write a report of up of 4,000 words double spaced (Font 12 , Time New Roma)
where you analyse the results. 5% credit is allocated to writing style and grammar.Suggested structure:
 Title should include the following “analysis of correlation and beta of the listed
company: (name of your company here).
 Introduction: explain what you intend to analyse in your report (5%)
 CAPM and DGM
 What is beta and its role? (5%)
 Presentation of the company (5%)
 Analyse beta for your company and compare it to competitors/industry (20%)
 Report and interpret descriptive statistics of return rate along with risk measures
(mean, standard deviation, variance, coefficient of variation, correlation; 15%)
 Calculation of rate of return using CAPM model (students should report the sources
of risk-free rate and market risk premium; 20%)
 Calculation of growth rate of earnings (historical growth rate and sustainable growth
rate) used in DGM and calculation of required rate of return using DGM model (20%)
 Conclusion: Compare the results from both models, and provide the disadvantages
of both models. (5%)
The presentation should follow the same structure of the report with greater focus on the analysis of
the results. 10% of the mark of the presentation is allocated to answering questions correctly. I
recommend three questions per student.

Courtesy of Prof Shahid Bashir – DWC
Quantitative Financial Methods (BUS 4213)
Group Project submission (20%)
201810
______________________________________________________________________________
Type of Assignment: Group project of 2—Report Submission
Weight: 20% of overall grade
Submission Date(s): November 18, 2018
Grading:
Names of the
Assesse
Date
Assessor
Total marks
CommentsCourtesy of Prof Shahid Bashir – DWC
Rubric for Written Report
Component Excellent
(87 and above)
Good
(75-86)
Satisfactory
(60-74)
Unacceptable
Below 60
Information and
data collection
(20%)
Data and
Information is
collected from
several credible
sources including
any three business
firms
Data and
Information is
collected from
few sources and
interviewed just
one or two
business firms
Data and
Information is
collected from
just one to two
sources and did
not collect
industry opinion
No work done or
report submitted is
irrelevant at large
Analytical
thinking and
Judgment
(20%)
Excellent
integration and
use of
information, and
relevant concepts
to reach on
findings and
conclusion
Appropriate
integration and
use of
information, and
relevant concepts
to reach on
findings and
conclusion but
ignores some
knowledge and
facts
Satisfactory
integration and
use of
information, and
relevant concepts
to reach on
findings and
conclusion but
ignores important
knowledge and
facts
Inadequate or
inappropriate or
illogical
integration and
use of information
and ignores
significant body of
relevant
knowledge and
facts
Practicality and
suitability of
Recommendations
(10%)
All suggestions
and
recommendations
are aligned with
given findings,
facts, real market
situations and
environment
Most of the
suggestions seem
appropriate and
aligned with
given findings,
facts, real market
situations and
environment
Few of the given
suggestions and
recommendations
are appropriate
and aligned with
given findings,
facts, real market
situations and
environment
No suggestions
and
recommendations
or given
suggestions are
very inappropriate
and illogical and
not aligned with
given findings,
facts, real market
situations and
environment