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VALUE MEASUREMENT
INTRODUCTION
The purpose of this report is to understand the Canadian stock market and valuing stock prices of the following six Canadian companies: Bank of Montreal, Toronto-Dominion Bank, Canadian Tire, Sears, Husky Energy, and Petrol Canada. We have used ten years of data to examine the prices of these six Canadian companies under the Security Market Line theory. The stock prices of these companies have been taken from Yahoo finance and MSN finance. The simple linear regression method was used to calculate risk premium and beta.
Bank of Montreal (BMO)
BMO Financial Group is one of the largest financial services providers in North America, offering comprehensive retail banking, wealth management and investment banking products, services and solutions.
According to the TSX historical data obtained from Yahoo Finance, the arithmetic method was used to average the returns of BMO stock at 5.19% (Exhibit 1) based on semi-annual prices during the 10-year period. The same method was also implemented to calculate the average of compensation prices of 4.02% (Exhibit 1). Besides the simple linear regression offered, the way of calculating beta, which equaled 0.5177 (Exhibit 1) less than 1, indicated the relatively low risk to the markets. Alpha 0.0311 (Exhibit 1) was also brought out after the entry of the point (4.02%, 5.19%) to the linear function y=a + 0.5177x (Exhibit 1). In addition, according to the formula RRR (Required Rate of Return), we could easily get the average RRR of BMO which is 3.58%.
Above all, compared to the average return of BMO, it was obvious that the RRR, 3.58% was lower than the average stock return on the TSX market, 5.19%. Therefore, the value of BM ...