You Have Been Asked to Evaluate the Performance of a Firm

question 118

Essay

You have been asked to evaluate the performance of a firm over the last year and to make some predictions for performance over the next year.The following data are provided to you:
$\begin{array}{lll}&\underline{\text {one year ago, }}&\underline{\text {today}}\\\text { 6-month T-bill rate } & 5 \% & 6 \% \\\text { firm's estimated beta } & 1.25 & 1.5 \\\text { NYSE index level } & 130 & 137 . \\\text { firm's stock price } & 50 & 52.5 \\\text { firm's exp. dividend yields } & 4 \% & 4 \% \\\text { market's exp. divided yield } & 3 \% & 3 \%\end{array}$


a. Evaluate the firm's performance over the last year. (Estimate the excess returns, either positive or negative, made by this firm.)
b. What would you expect the stock price to be one year from today?
c. You estimate that the standard deviation of this stock next year will be 50% and the standard deviation of the market will be 20%. What proportion of the firm's total risk is non-diversifiable?

Recognize the difference between horizontal and vertical agreements and their implications on antitrust laws.

Understand the role of the Federal Trade Commission in enforcing antitrust laws.

Comprehend the objectives of antitrust laws, particularly in maintaining competition and preventing monopolies.

Distinguish between legal and illegal practices under the Sherman Act, Clayton Act, and the Robinson-Patman Act.

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Definitions:

Volitional Control

Refers to the ability to make wilful, conscious decisions or exert self-control over one's actions and reactions.

Attitude-Behavior Consistency

The extent to which individuals’ attitudes (beliefs and feelings) about an object predict their behavior towards that object.

Cognitive Dissonance

The mental discomfort experienced by a person who holds two or more contradictory beliefs, ideas, or values at the same time.

Theory of Planned Behavior

A theory that predicts an individual's intention to engage in a behavior at a specific time and place, considering the attitude toward the behavior, subjective norms, and perceived behavioral control.