Corporate Finance: Instructor\'s Manual Applied Corporate Finance

Aswath Damodaran 101 Implied Premiums in the US ...

Aswath Damodaran 102 ! Application Test: A Market Risk Premium ! Based upon our discussion of historical risk premiums so far, t ...

Aswath Damodaran 103 Estimating Beta ! The standard procedure for estimating betas is to regress stock returns (Rj) against mark ...

Aswath Damodaran 104 Estimating Performance ! The intercept of the regression provides a simple measure of performance during th ...

Aswath Damodaran 105 Firm Specific and Market Risk ! The R squared (R^2 ) of the regression provides an estimate of the proporti ...

Aswath Damodaran 106 Setting up for the Estimation ! Decide on an estimation period Services use periods ranging from 2 to 5 ye ...

Reports parameters used. Aswath Damodaran 107 Choosing the Parameters: Disney ! Period used: 5 years ! Return Interval = Monthly ...

This has both the scatter plot and the regression line. Note the noise in the plots around the line. That can be viewed either a ...

Aswath Damodaran 109 The Regression Output ! Using monthly returns from 1999 to 2003 , we ran a regression of returns on Disney ...

Aswath Damodaran 110 Analyzing Disney’s Performance ! Intercept = 0. 0467 % This is an intercept based on monthly returns. Thus ...

Aswath Damodaran 111 More on Jensen’s Alpha If you did this analysis on every stock listed on an exchange, what would the averag ...

Aswath Damodaran 112 A positive Jensen’s alpha... Who is responsible? ! Disney has a positive Jensen’s alpha of 0. 60 % a year b ...

Aswath Damodaran 113 Estimating Disney’s Beta ! Slope of the Regression of 1. 01 is the beta ! Regression parameters are always ...

Aswath Damodaran 114 The Dirty Secret of “Standard Error” Distribution of Standard Errors: Beta Estimates for U.S. stocks 0 200 ...

Aswath Damodaran 115 Breaking down Disney’s Risk ! R Squared = 29 % ! This implies that 29 % of the risk at Disney comes from m ...

Aswath Damodaran 116 The Relevance of R Squared You are a diversified investor trying to decide whether you should invest in Dis ...

Aswath Damodaran 117 Beta Estimation: Using a Service (Bloomberg) This is the page for Disney’s beta, using the same period as t ...

Aswath Damodaran 118 Estimating Expected Returns for Disney in September 2004 ! Inputs to the expected return calculation Disne ...

Aswath Damodaran 119 Use to a Potential Investor in Disney As a potential investor in Disney, what does this expected return of ...

Aswath Damodaran 120 How managers use this expected return ! Managers at Disney need to make at least 8. 87 % as a return for t ...