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Finance and Investment : Business Intractibility and Applications

Describe about the Finance and Investment for Business Intractibility and Applications.

Answer:

Part 2: Valuation

1. CAPM estimation:

Particulars

Standard Deviation

Singapore DBS Bank

0.055

OCBC Bank

0.047

UOB Bank

0.055

STI Index

0.037

Table 1: Standard deviation of Singapore DBS Bank, OCBC Bank, UOB Bank and STI Index


(Source: Yahoo Singapore Finance 2016)

Particulars

Covariance

DBS and STI

-0.00167

OCBC and STI

-0.00151

UOB and STI

-0.00159

Table 2:  Covariance of Singapore DBS Bank, OCBC Bank, UOB Bank and STI Index

(Source: Yahoo Singapore Finance 2016)

Particulars

Average Return

DBS Bank

0.004975

OCBC Bank

-0.000348

UOB Bank

0.001867

STI Index

0.001834

Table 3: Average or expected return of Singapore DBS Bank, OCBC Bank, UOB Bank and STI Index

(Source: Yahoo Singapore Finance 2016)

Particulars

DBS Bank

OCBC Bank

UOB Bank

Beta

-1.210949

-1.095129922

-1.150810406

Risk-free rate

2.125%

2.125%

2.125%

Expected Market Return

0.001834

0.001834

0.001834

Cost of Equity

4.48%

4.25%

4.36%

Table 4: CAPM valuation, cost of equity of Singapore DBS Bank, OCBC Bank, UOB Bank and STI Index

(Source: Yahoo Singapore Finance 2016)

Reference and Bibliographies:

Brown, P. and Walter, T., 2013. The CAPM: theoretical validity, empirical intractability and practical applications. Abacus, 49(1), pp.44-50.

Da, Z., Guo, R.J. and Jagannathan, R., 2012. CAPM for estimating the cost of equity capital: Interpreting the empirical evidence. Journal of Financial Economics, 103(1), pp.204-220.

Dempsey, M., 2013. The capital asset pricing model (CAPM): the history of a failed revolutionary idea in finance?. Abacus, 49(1), pp.7-23.

Johnstone, D.J., 2013. The CAPM debate and the logic and philosophy of finance. Abacus, 49(S1), pp.1-6.

Yahoo Singapore Finance. (2016). Yahoo Singapore Finance. [online] Available at: https://sg.finance.yahoo.com/ [Accessed 22 Sep. 2016].

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