III. Risk and Return • To understand the risk profile of the company, estimate risk parameters and the hurdle rates for the firm, try answering the following questions: 1. Estimati ng Historical Risk Parameters (Top Down Betas) Run a regression of returns on your firm's stock against returns on a market index, preferably using monthly data and 5 years of observations (or) If you have access to Bloomberg, go into the beta calculat ion page and print off the page (after setting return intervals to monthly and using 5 years of data) • What is the intercept of the regression? What does it tell you about the performance of this company's stock during the period of the regression? • What is the slope of the regression? - What does it tell you about the risk of the stock? - How precise is this estimate of risk? (Provide a range for the estimate.) • What portion of this firm's risk can be attributed to market factors? What portion to firm - specific factors? Why is this important? •