Using Yahoo! Finance find the value of beta for WasteManagement.Write a two page paper discussing the following items:
a. What is the estimated beta coefficient of WasteManagement? What does this beta mean in terms of your choice to include this company in your overall portfolio?
b. Given the beta of WasteManagement, the present yield to maturity on U.S. government bonds maturing in one year (currently about 4.5% annually) and an assessment that the market risk premium (that is - the difference between the expected rate of return on the 'market portfolio' and the risk-free rate of interest) is 6.5%, use the CAPM equation in order to find out what is the present 'cost of equity' of your company? Explain what is the meaning of 'cost of equity'.
c. Choose two other companies, look up their "Beta" and report the names of these companies and their betas. Suppose you invest one third of your money in each of the stocks of these companies. What will the beta of the portfolio be? Given the data in (b), what will the Expected Rate of Return on this portfolio be? Do you feel that the three-stock portfolio is sufficiently diversified or does it still have risk that can be diversified away? Explain.
Examine the structure and activities in WasteManagement and identify two projects or events that required an investment. One should be a 'current project' and the other long-term investment project.
For each project or event, identify the preferable source of funding. You may not have access to the actual source of funding so limit your paper to the source YOU feel is most appropriate. Then explain why you feel that source is most appropriate.
In a two-page report explain your answers thoroughly with references to the background materials. Make sure to demonstrate a strong understanding of the concept of beta and the risk/return trade off.
Your explanation is the most important part of this paper. You should include references to the background materials or other articles and a discussion of the main concepts of this module as they relate to your choice of funding. The part should be two pages in length.