This website uses cookies to ensure you have the best experience. Learn more

Beta Management Company Essay

854 words - 4 pages

October 1, 2012
Case Study#6: Beta Management Company
In 1988, Sarah Wolfe formed and became the CEO of an investment management company named Beta Management Company in the Boston metro area. It was primarily created due to the results of the October 1987 market crash when a rich married couple was saddened by their investment losses. In early 1991, Ms. Wolfe was pondering whether or not to initiate a plan to set out new objectives and guidelines for Beta in the upcoming year. Currently, Beta’s stated purpose was to enhance the returns and reduce risks for her high-net-worth clients through market timing. In order to accomplish this task, Ms. Wolfe would keep the vast majority of ...view middle of the document...

Wolfe’s investment strategy is definitely leaning in her direction for the future assuming if 1991 turns out to be a great year.
Before she can make any conclusions, Ms. Wolfe must consider the purchase of two stocks which would increase her market exposure heavily (around 80%). The two stocks are the California R.E.I.T. (Real Estate Investment Trust), which made equity and mortgage investments and Brown Group, Inc. which was a large manufacturer and retailer of shoes. First, she must calculate the variability of each stock. Variability is expressed through standard deviation. California R.E.I.T. produced an average return of -2.26% and had a standard deviation of 9.23%. Brown Group produced an average return of -0.67% and a standard deviation of 8.17%. Compared to the Vanguard fund, these are not good results for either individual stock. If Ms. Wolfe based her analysis solely off this information, she would rather prefer the Vanguard fund.
However, let us say that Beta’s position had been in 99% in the Vanguard and 1% of the individual stock, whether or not it was the California R.E.I.T. or Brown. If Beta had used the California R.E.I.T., the portfolio would have produced an average return of 1.09% and a standard deviation of 4.56% over the past two years. The Brown Group would have produced an average return of 1.08% and a standard deviation of 4.62%. On the contrary if Beta had...

Other Papers Like Beta Management Company

Business Admin Essay

882 words - 4 pages " or "residual risk," can be reduced through diversification. By owning stocks in different companies and in different industries, as well as by owning other types of securities such as Treasuries and municipal securities, investors will be less affected by an event or decision that has a strong impact on one company, industry or investment type. Examples of unsystematic risk include a new competitor, a regulatory change, a management change and a

Corporate Finance Essay

1177 words - 5 pages into practice, companies tend establish rules around Payback when evaluating a project. For example, a company might decide that all its projects need to have a Payback less than 6 years. This is also known as a cut off period. Advantages of Payback Period:- • Easily understood by management and shareholders, as it clearly identifies the time frame to when a project provides a return to the initial investment. • Also takes into

Finance 100

1172 words - 5 pages over time helps to determine if the goals set for the investment are being met. It also impacts the buying and selling of assets on reaching the goals of the firm. The realized return is used as a management tool, and knowing this return for successive periods can help an investor arrange his or her assets to best effect, and position to move onward to the next level. Contrast systematic and unsystematic return. Systematic risk is risk

Risk Managemant

439 words - 2 pages General Index. b. The standard deviation for the company and the Index c. The beta for the COLM. Month COLM Index 1 34% 14% 2 9% 12% 3 -10% 13% 4 7% -8% 5 9% 11% 6 3% 6% Correlation Coefficient 0.166212854% 0.166212854% Standard Deviation 14.32% 8.32% Beta 0.080461638% 0.080461638%

Marriott Wacc Case Study

2549 words - 11 pages be 1.4 percent. 8.95% + 1.4% = 10.35% The weight equity is equal to 1 – Debt percentage, which is given for contract services as 40 percent. 1-40% = 60%. Cost Equity is equal to the Risk Free Rate + Equity Beta (Market Risk Premium). Risk Free Rate and Market Risk Premium are given in the case. Contract services have no available comparable information. However, the asset beta of the entire company is the weighted average of all the

Marriott Corporation: the Cost of Capital

1847 words - 8 pages uses its unsecured debt rate which is A-rated with a spread above US govt. Rates and applies long-term debt rate for Lodging, short-term debt rate for Restaurants and Contract Services. For cost of equity, company uses CAPM model and finds a beta coefficient of the stock with respect to market return, which reflects the systematic risk of Marriot. However, two issues occurred: i) the company uses weighted average of the betas across different

Guillermo Furniture Analysis

1226 words - 5 pages Guillermo Furniture Analysis University of Phoenix Abstract Guillermo Furniture stores had a dominate position in custom furniture. They were could sale their furniture at premium prices. New competition has caused Guillermo to rethink its strategy. The store must analyze the most advantageous way to stay competitive in their current market. Their choices are to stay the current course, become hi-tech, or a brokerage company

Fin 534 Week 4 Quiz 5 Answers

3442 words - 14 pages . Coefficient of variation; beta. e. Beta; beta. Question 15 Which of the following statements is CORRECT? If a company has two classes of common stock, Class A and Class B, the stocks may pay different dividends, but under all state charters the two classes must have the same voting rights. The preemptive right gives stockholders the right to approve or disapprove of a merger between their company and some other company. The preemptive right

Marriot Case Analyse

2847 words - 12 pages the risk to invest Marriott, which will also attract more investors to enter this Corporation and helps the company to have more capital to develop. Also, Marriot is able to retain the operating control as the general partner under a long-term management contract, so it might reduce the possibility for someone to take over the whole hotel assets and make changes about the current operating control right. Thus Marriot will operate in a growing and

Financial Analysis for Marriott

1861 words - 8 pages Problem Statement Marriott Corporation’s Vice-President of Project Finance, Mr. Dan Cohrs has been tasked with determining appropriate hurdle rates for the three operating divisions in the upcoming year, 1988. The three operating divisions include lodging, contract services, and restaurants. The overall company strategy is to “remain a premier growth company”, which is evidenced in the previous year through sales growth of 24% return on equity

Assignment # 4 – Medical Associates

565 words - 3 pages HSA 525-Health Financial Management Assignment # 4 – Medical Associates November 27, 2011 Medical Associates: Equity cost of capital, DCF, CAPM, risk, capital budgeting Medical Associates is a large for-profit group practice.  Its dividends are expected to grow at a constant rate of 7% per year into the foreseeable future.  The firm's last dividend (D0) was $2, and its current stock price is $23.  The firm's beta coefficient is 1.6; the

Related Essays

Beta Blockers Essay

1235 words - 5 pages treated with beta-blockers. These effects lead to an overall decrease in morbidity and mortality in these patients (Butler et al, 2006). Studies have shown that treatment with beta-blockers, along with behavioral management is effective in the prevention of recurring migraine headaches (Holroyd et al, 2010). When treated with beta-blockers, patients with glaucoma should experience a decrease in intraocular pressure, which will relieve pressure on

Test Essay

1010 words - 5 pages GM4202 Financial Management Professor Lena Booth (Individual Homework Assignment) This assignment will be graded. It must be turned in at the beginning of the class on the due date specified on the course page. Answer all the 10 questions by showing your workings in the space provided. Please write legibly, or if you choose, type your answers. Your Name

Finance Capm Essay

1309 words - 6 pages MM 5009 FINANCIAL MANAGEMENT CAPITAL ASSET PRICING MODEL (CAPM) 50A – Syndicate 6 Alexius Justianto (29113336) Dwi Aprilia (29113338) Denia Fadila Rusman (29113360) Talitha Marcia Farid (29113382) Delfi Kusumawardhani (29113545) MASTER OF BUSINESS ADMINISTRATION SCHOOL OF BUSINESS AND MANAGEMENT INSTITUT TEKNOLOGI BANDUNG 2014 EXECUTIVE SUMMARY I. Objective Choose 1 public company. Try to get the stock price from past year

Beta Case Study

905 words - 4 pages . 3 Beta Management Company I. Case Background Beta Management Company was founded in 1988 by Ms. Wolfe. Beta Management Company is a small investment management company based in a Boston suburb. Beta Management Company was successful in 1989 and 1990. This success had brought in enough new money to double the size of the company. However, Ms. Wolfe had lost some potential new clients who had thought it unusual that Beta Management used