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201-046

Cost of Capital at Ameritrade

Exhibit 1 Consolidated Annual Income Statements for the Fiscal Year Ending in September
1997
Net Revenues
Transaction Income
Net Interest
Other
Total Net Revenues

1996

1995

51,936,902.00 $
18,193,946
7,107,492
77,238,340

36,469,561.00 $
11,477,878
6,391,314
54,338,753

Expenses Excluding Interest


Employee Compensation
Commissions and Clearance
Communications
Occupancy and Equipment Cost
Advertising and Promotion
Provision for Losses
Amortization of Goodwill
Other
Total Expenses Excluding Interest

19,290,808
3,320,262
5,623,468
5,422,839
13,970,834
59,000
363,002
7,763,014
55,813,227

14,049,642
2,530,642
3,685,535
2,889,654
7,537,265
148,014
363,002
4,717,406
35,921,160

8,481,977
2,516,796
2,352,590
1,626,725
4,842,392
1,428,663
94,152
2,846,280
24,189,575

Income Before Income Taxes

21,425,113

18,417,593

10,830,028

7,602,964

7,259,248

3,798,881

13,822,149 $

11,158,345 $

7,031,147

Taxes
Net Income
EPS
Shares Outstanding
Source: Ameritrade Annual Report, 1997.

23,977,481.00
8,434,584
2,607,538
35,019,603

$1.00

$0.87

$0.55

13,768,889

12,813,823

12,813,823

Ameritrade

Cost of Capital at Ameritrade

201-046

Exhibit 2 Consolidated Annual Balance Sheets for the Fiscal Year Ending in September
1997

ASSETS
Cash & Gash Equivalents
Cash & Investments Segregated in Compliance with Federal Regulations
Receivable from Brokers, Dealers, & Clearing Organizations
Receivable from Customers & Correspondents
Furniture, Equipment, & Leasehold Improvements
Goodwill
Equity Investments
Other Investments
Deferred Income Taxes
Other Assets

1996

53,522,447.00 $
319,763,921
17,823,640
325,407,147
8,709,923
6,346,763
7,597,972
5,000,000
39,314
13,145,616

15,767,170.00
175,668,497
15,096,862
166,075,055
3,746,178
6,709,765
7,157,783
5,000,000
444,378
6,013,544

757,356,743 $

401,679,232

LIABILITIES & STOCKHOLDERS EQUITY


Liabilities:
Payable to Brokers, Dealers, & Clearing Organizations
Payable to Customers & Correspondents
Accounts Payable and Accrued Liabilities
Notes Payable to Bank
Income Taxes Payable

1,404,999
666,279,440
19,252,931
3,430,279

1,193,479
356,942,970
7,221,008
4,853,000
806,711

Total Liabilities

690,367,649

371,017,168

Stockholders Equity:
Class A Common Stock
Class B Common Stock
Additional Paid in Capital
Retained Earnings

131,534
13,644
23,297,506
43,546,410

114,494
13,644
809,665
29,724,261

Total Stockholders Equity

66,989,094

30,662,064

757,356,743 $

401,679,232

Total Assets

Total Liabilities & Stockholders Equity

Source: Ameritrade Annual Report, 1997.

201-046

Cost of Capital at Ameritrade

Exhibit 3 Capital Market Return Data (Historical and Current)


Prevailing Yields on US Government Securities (August 31, 1997)
Annualized Yield to Maturity
3-Month T-BiIls
1-Year Bonds
5-Year Bonds
10-Year Bonds
20-Year Bonds
30-Year Bonds

5.24%
5.59%
6.22%
6.34%
6.69%
6.61%

Historic Average Total Annual Returns on US Government Securities and Common Stocks (1950 -1996)
Average Annual Return
Standard Deviation
T-Bills
5.2%
3.0%
Intermediate Bonds a
6.4%
6.6%
Long Term Bonds b
6.0%
10.8%
Large Company Stocks c
14.0%
16.8%
Small Company Stocks d
17.8%
25.6%

Historic Average Total Annual Returns on US Government Securities and Common Stocks (1929 - 1996)
Average Annual Return
Standard Deviation
T-Bills
3.8%
3.3%
Intermediate Bonds a
5.4%
5.8%
Long Term Bonds b
5.5%
9.2%
Large Company Stocks c
12.7%
20.3%
Small Company Stocks d
17.7%
34.1%

Source: Yields are from Datastream, historical data are from lbbotson Associates, SBBI 2000 Yearbook.
a Portfolio of US Government bonds with maturity near 5 years.
b Portfolio of US Government bonds with maturity near 20 years.
c Standard and Poors 500 Stock Price Index.
d A subset of small cap stocks traded on the NYSE (1926-1981); Dimensional Fund Advisors Small Company Fund (1982-1997).

of Capital at Ameritrade

201-046

Exhibit 4 Selected Data for Comparable Firms

Firm Name (Industry)


A G Edwards (Investment Services) a
Bear Stearns (Investment Services)
Charles Schwab Corp (Discount Brokerage)
E*Trade (Discount Brokerage)
Lehman Brothers (Investment Services)
Mecklermedia (Internet)
Merrill Lynch & Co (Investment Services)
Morgan Stanley Dean Witter (Investment Services)
Netscape (Internet)
Paine Webber (Investment Service)
Quick & Reilly Group (Discount Brokerage)
Raymond James Financial (Investment Services)
Waterhouse Investor Srvcs (Discount Brokerage)
Yahoo (Internet)

Debt/Value
(Market Values)
Current
Avg 1992-1996
0.00
0.60
0.05
0.00
0.79
0.00
0.57
0.57
0.00
0.51
0.00
0.05
NA
0.00

0.00
0.50
0.08
NA
NA
0.00 b
0.52
0.53
NA
0.53
0.00
0.04
0.38
NA

Source: Compustat; Standard & Poors; company public filings


a lnvestment Services includes brokerage, asset management, investment banking, and trading.
b Indicates average over 1993-1996.
c indicates average over 1992-1995

Debt/Value
(Book Values)
Current
Avg 1992-1996
0.00
0.69
0.25
0.00
0.80
0.00
0.77
0.70
0.00
0.63
0.00
0.07
NA
0.00

0.00
0.60
0.30
NA
0.79 b
0.00 b
0.65
0.63
NA
0.58
0.00
0.06
0.70 c
NA

Brokerage
Revenues (%)
57
35
82
95
13
0
37
12
0
46
81
51
99
0

-7-

These companies
are similar to
Ameritrade

201-046

Exhibit 5

Cost of Capital at Ameritrade

Stock Price Data for Discount Brokers

Date
31-Mar-97
30-Apr-97
30-May-97
30-Jun-97
31-Jul-97
29-Aug-97

Date
30-Sep-87
30-Oct-87
30-Nov-87
31-Dec-87
29-Jan-88
29-Feb-88
31 -Mar-88
29-Apr-88
31-May-88
30-Jun-88
29-Jul-88
31-Aug-88
30-Sep-88
31-Oct-88
30-Nov-88
30-Dec-88
29-Jan-89
29-Feb-89
32 -Mar-88
29-Apr-89
31-May-89
30-Jun-89
29-Jul-89
31-Aug-89
30-Sep-89
31-Oct-89
30-Nov-89
30-Dec-89
29-Jan-90

Shares
13,153
13,153
13,153
14,518
14,518
14,518

Ameritrade
Price
Dividend

Stock Split

15.625
12.500
14.000
15.750
15.375
18.813

Charles Schwab
Shares
Price
Dividend
29,121
15.875
29,121
7.875
29,121
6.625
25,388
6.000
25,388
6.500
25,388
9.000
25,388
7.375
25,388
7.625
25,388
6.875
25,294
7.250
25,294
7.500
25,294
6.750
25,328
6.750
25,328
7.500
25,328
6.750
25,354
6.750
25,354
10.250
25,354
8.625
25,354
8.875
25,354
10.125
25,354
11.750
0.030
25,352
11.000
25,352
16.500
0.030
25,352
15.750
25,386
14.000
25,386
13.000
0.030
25,386
12.500
25,332
13.875
25,332
13.500
0.030

-0.200
0.120
0.125
-0.024
0.224

Stock Split
-0.504
-0.159
-0.094
0.083
0.385
-0.181
0.034
-0.098
0.055
0.034
-0.100
0.000
0.111
-0.100
0.000
0.519
-0.159
0.029
0.1408
0.1635
-0.0638
0.5027
-0.0455
-0.1111
-0.0693
-0.0385
0.1100
-0.0249

29-Feb-90
33 -Mar-88
29-Apr-90
31-May-90
30-Jun-90
29-Jul-90
31-Aug-90
30-Sep-90
31-Oct-90
30-Nov-90
30-Dec-90
29-Jan-91
29-Feb-91
34 -Mar-88
29-Apr-91
31-May-91
30-Jun-91
29-Jul-91
31-Aug-91
30-Sep-91
31-Oct-91
30-Nov-91
30-Dec-91
29-Jan-92
29-Feb-92
35 -Mar-88
29-Apr-92
31-May-92
30-Jun-92
29-Jul-92
31-Aug-92
30-Sep-92
31-Oct-92
30-Nov-92
30-Dec-92
29-Jan-93
29-Feb-93
36 -Mar-88
29-Apr-93
31-May-93
30-Jun-93
29-Jul-93
31-Aug-93
30-Sep-93
31-Oct-93
30-Nov-93
30-Dec-93
29-Jan-94
29-Feb-94
37 -Mar-88
29-Apr-94
31-May-94

25,332
25,332
25,332
25,332
25,099
25,099
25,099
25,255
25,255
25,255
24,464
24,464
24,464
24,464
24,464
24,464
24,435
24,435
24,435
25,596
25,596
25,596
38,394
38,394
38,394
38,479
38,479
38,479
38,626
38,626
38,626
38,149
38,149
38,149
37,741
37,741
37,741
37,741
37,741
37,741
56,612
56,612
56,612
57,625
57,625
57,815
57,815
57,815
57,815
57,815
57,815
57,815

15.250
17.000
15.125
15.750
15.250
13.625
12.625
11.375
12.625
11.875
11.375
16.000
18.250
20.250
18.125
22.500
24.750
27.500
28.375
31.125
37.750
32.750
30.375
31.875
33.250
34.625
28.500
28.875
23.500
24.625
22.500
18.000
20.250
24.875
26.125
30.250
32.375
36.500
32.750
35.250
28.500
29.000
32.875
34.500
34.625
31.875
32.375
29.500
27.500
26.875
28.375
30.250

0.030

0.030

0.040

0.040

0.040

0.050

0.060
3 for 2
0.040

0.060

0.060

0.060

0.060

0.075
3 for 2
0.050

0.050

0.070

0.070

0.1296
0.1148
-0.1085
0.0413
-0.0317
-0.1046
-0.0734
-0.0990
0.1134
-0.0594
-0.0421
0.4101
0.1406
0.1096
-0.103
0.241
0.100
0.113
0.032
0.097
0.215
-0.132
0.391
0.051
0.043
0.041
-0.175
0.013
-0.186
0.050
-0.086
-0.200
0.128
0.228
0.050
0.160
0.070
0.127
-0.101
0.076
0.213
0.019
0.134
0.049
0.005
-0.079
0.016
-0.087
-0.068
-0.023
0.058
0.066

30-Jun-94
29-Jul-94
31-Aug-94
30-Sep-94
31-Oct-94
30-Nov-94
30-Dec-94
29-Jan-95
29-Feb-95
38 -Mar-88
29-Apr-95
31-May-95
30-Jun-95
29-Jul-95
31-Aug-95
30-Sep-95
31-Oct-95
30-Nov-95
30-Dec-95
29-Jan-96
29-Feb-96
39 -Mar-88
29-Apr-96
31-May-96
30-Jun-96
29-Jul-96
31-Aug-96
30-Sep-96
31-Oct-96
30-Nov-96
30-Dec-96
29-Jan-97
29-Feb-97
40 -Mar-88
29-Apr-97
31-May-97
30-Jun-97
29-Jul-97
31-Aug-97

57,114
57,114
57,114
56,829
56,829
57,325
57,325
57,325
57,325
85,988
85,988
85,988
85,896
85,896
87,061
174,122
174,122
174,678
174,678
174,678
174,678
174,678
174,032
174,032
174,989
174,989
174,989
175,166
175,166
175,166
175,173
175,173
175,173
175,173
175,068
175,068
175,813
176,422
176,422

24.750
26.750
30.750
29.625
35.375
31.875
34.875
40.000
44.375
32.250
34.250
35.000
43.875
46.125
46.625
29.000
22.875
24.250
20.125
25.125
25.500
25.875
24.500
24.250
24.500
24.125
25.000
23.000
25.000
30.250
32.000
37.500
37.500
32.000
36.625
40.625
40.500
47.000
42.750

0.070

0.070

0.090
3 for 2
0.060

0.080
2 for 1
0.040

0.040

0.040

0.050

0.050

0.050

0.050

0.050

-0.182
0.084
0.150
-0.037
0.196
-0.099
0.094
0.150
0.109
0.090
0.064
0.022
0.254
0.053
0.011
0.244
-0.210
0.060
-0.170
0.250
0.015
0.015
-0.052
-0.010
0.010
-0.013
0.036
-0.080
0.089
0.210
0.058
0.172
0.001
-0.147
0.145
0.111
-0.003
0.160
-0.089
0.036
0.148

Date
30-Aug-96
30-Sep-96
31-Oct-96
29-Nov-96
31-Dec-96
31-Jan-97

Shares
29,393
29,539
29,539
29,539
29,545
29,545

E*Trade
Price
Dividend
10.500
13.188
11.125
10.938
11.500
17.625

Stock Split

0.256
-0.156
-0.017
0.051
0.533

Jan 92-Dec 96
0.03345
0.11513

28-Feb-97
31-Mar-97
30-Apr-97
30-May-97
30-Jun-97
31-Jul-97
29-Aug-97

Date
31-Jan-84
29-Feb-84
30-Mar-84
30-Apr-84
31-May-84
29-Jun-84
31-Jul-84
31-Aug-84
28-Sep-84
31-Oct-84
30-Nov-84
31-Dec-84
31-Jan-85
29-Feb-85
30-Mar-85
30-Apr-85
31-May-85
29-Jun-85
31-Jul-85
31-Aug-85
28-Sep-85
31-Oct-85
30-Nov-85
31-Dec-85
31-Jan-86
29-Feb-86
30-Mar-86
30-Apr-86
31-May-86
29-Jun-86
31-Jul-86
31-Aug-86
28-Sep-86
31-Oct-86
30-Nov-86
31-Dec-86
31-Jan-87
29-Feb-87

29,545
30,440
30,440
30,440
30,958
30,958
30,958

Shares

24.000
18.000
15.000
17.625
19.625
30.500
32.125

0.362
-0.250
-0.167
0.175
0.113
0.554
0.053

Quick & Reilly


Price
Dividend

6,318
6,318
6,318
6,318
6,318
6,318
6,318
6,318
6,318
6,318
6,318
6,318
6,318
6,318
6,318
6,318
6,318
6,318
6,318
6,318
6,318
6,318
6,318
6,318
6,318
6,318
6,318
6,318
11,149
11,149
11,149
11,149
11,149
11,149
11,149
11,149
11,149
11,149

17.625
15.000
14.875
17.125
17.375
18.000
14.750
18.000
17.000
17.875
15.250
15.500
23.375
23.750
23.125
20.625
22.625
24.000
24.125
22.875
20.125
22.250
25.500
32.500
36.375
39.125
39.000
30.375
33.375
35.500
29.000
28.750
23.875
32.125
29.500
26.750
36.125
36.875

0.050

0.050
0.050

0.050

0.110

0.060

0.060

0.060

0.170

0.070

0.070

0.070

0.200

Stock Split

-0.146
-0.008
0.151
0.015
0.039
-0.181
0.224
-0.056
0.051
-0.144
0.016
0.508
0.021
-0.026
-0.108
0.100
0.061
0.005
-0.049
-0.120
0.106
0.149
0.275
0.119
0.080
-0.003
-0.221
0.101
0.064
-0.183
-0.006
-0.170
0.346
-0.080
-0.093
0.350
0.026

30-Mar-87
30-Apr-87
31-May-87
29-Jun-87
31-Jul-87
31-Aug-87
28-Sep-87
31-Oct-87
30-Nov-87
31-Dec-87
31-Jan-88
29-Feb-88
30-Mar-88
30-Apr-88
31-May-88
29-Jun-88
31-Jul-88
31-Aug-88
28-Sep-88
31-Oct-88
30-Nov-88
31-Dec-88
31-Jan-89
29-Feb-89
30-Mar-89
30-Apr-89
31-May-89
29-Jun-89
31-Jul-89
31-Aug-89
28-Sep-89
31-Oct-89
30-Nov-89
31-Dec-89
31-Jan-90
29-Feb-90
30-Mar-90
30-Apr-90
31-May-90
29-Jun-90
31-Jul-90
31-Aug-90
28-Sep-90
31-Oct-90
30-Nov-90
31-Dec-90
31-Jan-91
29-Feb-91
30-Mar-91
30-Apr-91
31-May-91
29-Jun-91

11,149
16,724
16,724
9,477
9,477
9,477
9,477
9,477
9,477
9,477
9,477
9,477
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,437
9,437
9,437
9,210
9,210
9,210
9,452

36.000
21.375
21.500
19.250
20.250
24.625
23.000
12.125
11.625
12.500
12.625
13.500
12.250
12.625
11.500
11.875
11.500
11.250
11.750
11.750
11.500
10.875
15.000
13.750
13.250
13.000
16.125
14.000
16.500
17.000
16.750
15.750
14.875
13.625
12.000
13.625
13.250
13.000
15.250
14.000
13.500
11.375
10.375
9.750
10.125
10.250
13.125
16.125
18.875
17.500
17.750
17.000

3 for 2
0.055

0.055

0.055

0.180

0.060

0.060

0.060

0.060

0.060

0.060

0.060

0.130

0.070

0.070

0.070

0.070

0.070

-0.024 x
-0.109
0.008
-0.105
0.052
0.219
-0.066
-0.473
-0.037
0.075
0.010
0.084
-0.093
0.031
-0.084
0.033
-0.032
-0.017
0.044
0.000
-0.016
-0.054
0.379
-0.079
-0.036
-0.019
0.245
-0.132
0.179
0.034
-0.015
-0.060
-0.052
-0.084
-0.119
0.146
-0.028
-0.019
0.178
-0.082
-0.036
-0.152
-0.088
-0.060
0.046
0.012
0.280
0.234
0.171
-0.073
0.018
-0.042

y
3

31-Jul-91
31-Aug-91
28-Sep-91
31-Oct-91
30-Nov-91
31-Dec-91
31-Jan-92
29-Feb-92
30-Mar-92
30-Apr-92
31-May-92
29-Jun-92
31-Jul-92
31-Aug-92
28-Sep-92
31-Oct-92
30-Nov-92
31-Dec-92
31-Jan-93
29-Feb-93
30-Mar-93
30-Apr-93
31-May-93
29-Jun-93
31-Jul-93
31-Aug-93
28-Sep-93
31-Oct-93
30-Nov-93
31-Dec-93
31-Jan-94
29-Feb-94
30-Mar-94
30-Apr-94
31-May-94
29-Jun-94
31-Jul-94
31-Aug-94
28-Sep-94
31-Oct-94
30-Nov-94
31-Dec-94
31-Jan-95
29-Feb-95
30-Mar-95
30-Apr-95
31-May-95
29-Jun-95
31-Jul-95
31-Aug-95
28-Sep-95
31-Oct-95

9,452
9,452
9,210
9,210
9,210
9,220
9,220
9,220
9,292
9,292
9,292
9,292
9,292
9,292
9,884
9,884
9,884
9,884
9,884
9,884
9,824
9,824
9,824
10,315
10,623
10,623
10,643
10,643
10,678
11,212
10,678
11,238
11,238
11,238
11,238
11,168
11,168
11,121
11,121
11,111
11,111
11,111
11,075
11,075
11,075
11,075
11,075
16,613
16,613
16,613
16,613
24,920

19.625
20.625
19.250
20.375
20.000
27.750
27.500
28.500
28.625
21.500
21.500
21.000
20.125
19.625
20.125
21.000
25.375
24.750
27.000
26.000
27.125
25.125
26.125
28.875
30.750
35.000
36.250
35.875
34.250
35.750
35.375
28.375
25.625
26.375
26.875
25.375
24.750
29.250
25.875
25.750
24.750
28.375
30.875
35.000
35.500
40.625
47.000
36.625
38.500
37.375
45.875
23.750

0.070

0.070

0.180

0.080

0.080

0.080

0.220

0.100
1.443
0.100

0.100
1.788
0.270

0.120

0.120

0.120

0.290

0.150

3for2

0.100
3 for 2

0.154
0.055
-0.067
0.058
-0.015
0.388
-0.009
0.043
0.004
-0.249
0.004
-0.023
-0.042
-0.021
0.025
0.043
0.212
-0.025
0.091
-0.029
0.043
-0.074
0.044
0.160
0.065
0.141
0.036
-0.010
-0.043
0.096
-0.010
-0.190
-0.097
0.029
0.024
-0.056
-0.025
0.187
-0.115
-0.005
-0.034
0.146
0.088
0.143
0.014
0.144
0.157
0.174
0.051
-0.027
0.227
-0.223

30-Nov-95
31-Dec-95
31-Jan-96
29-Feb-96
30-Mar-96
30-Apr-96
31-May-96
29-Jun-96
31-Jul-96
31-Aug-96
28-Sep-96
31-Oct-96
30-Nov-96
31-Dec-96
31-Jan-97
29-Feb-97
30-Mar-97
30-Apr-97
31-May-97
29-Jun-97
31-Jul-97
31-Aug-97

Date
29-May-87
30-Jun-87
31-Jul-87
31-Aug-87
30-Sep-87
30-Oct-87
30-Nov-87
31-Dec-87
29-Jan-88
29-Feb-88
31-Mar-88
29-Apr-88
31-May-88
30-Jun-88
29-Jul-88
31-Aug-88
30-Sep-88
31-Oct-88
30-Nov-88
30-Dec-88
31-Jan-89
28-Feb-89
31 -Mar-89
28-Apr-89

24,952
24,952
25,056
25,056
25,056
25,056
25,056
25,056
25,178
25,178
25,178
25,178
25,178
25,178
25,173
25,173
37,760
37,760
37,760
38,606
38,664
38,664

25.375
20.500
23.250
26.250
29.500
30.500
33.875
32.500
28.375
29.250
26.500
26.250
28.375
29.875
36.625
35.000
20.875
22.125
23.000
23.250
26.250
34.250

0.070

0.080

0.070

0.080

0.080

0.190
3 for 2
0.060

0.060

Waterhouse Investor Services


Shares
Price
Dividend
2,572
6.938
2,572
8.000
2,572
8.250
2,572
7.500
2,572
8.000
2,572
6.250
2,572
6.000
2,572
5.250
2,572
4.500
2,482
4.750
2,482
6.000
2,482
5.875
2,482
6.250
2,482
5.000
2,482
3.500
2,482
3.250
2,482
4.000
2,482
3.375
2,482
3.500
2,482
2.750
2,482
3.750
2,472
3.750
2,472
4.750
2,472
4.250

0.071
-0.192
0.134
0.132
0.124
0.034
0.113
-0.041
-0.127
0.034
-0.094
-0.009
0.084
0.053
0.226
-0.039
-0.105
0.060
0.042
0.011
0.129
0.307

Stock Split
0.153
0.031
-0.091
0.067
-0.219
-0.040
-0.125
-0.143
0.056
0.263
-0.021
0.064
-0.200
-0.300
-0.071
0.231
-0.156
0.037
-0.214
0.364
0.000
0.267
-0.105

31-May-89
30-Jun-89
31 -Jul-89
31-Aug-89
29-Sep-89
31-Oct-89
30-Nov-89
29-Dec-89
31-Jan-90
28-Feb-90
30-Mar-90
30-Apr-90
31-May-90
29-Jun-90
31-Jul-90
31-Aug-90
28-Sep-90
31-Oct-90
30-Nov-90
31-Dec-90
31 -Jan-91
28-Feb-91
28-Mar-91
30-Apr-91
31-May-91
28-Jun-91
31-Jul-91
30-Aug-91
30-Sep-91
31-Oct-91
29-Nov-91
31 -Dec-91
31 -Jan-92
28-Feb-92
31-Mar-92
30-Apr-92
29-May-92
30-Jun-92
31 -Jul-92
31-Aug-92
30-Sep-92
30-Oct-92
30-Nov-92
31-Dec-92
29-Jan-93
26-Feb-93
31-Mar-93
30-Apr-93
28-May-93
30-Jun-93
30-Jul-93
31 -Aug-93

2,420
2,420
2,420
2,419
2,419
2,419
2,417
2,417
2,417
2,420
2,420
2,420
2,572
2,572
2,572
2,377
2,377
2,377
2,370
2,370
2,370
2,320
2,320
2,320
2,320
2,900
2,900
2,943
2,943
2,943
2,943
2,943
2,943
4,415
4,466
4,466
4,466
4,466
4,466
4,466
4,847
4,847
4,847
4,847
4,847
4,847
6,071
6,071
6,071
6,072
6,072
6,072

5.000
6.000
6.000
5.750
5.625
5.375
5.000
4.500
4.375
3.750
4.250
4.375
4.250
4.750
4.625
4.375
4.250
4.000
3.750
3.625
3.750
4.500
6.125
7.000
8.250
8.000
10.375
10.750
14.250
14.000
15.500
27.500
26.500
21.750
25.375
20.625
21.750
17.125
17.625
13.750
14.375
15.625
20.750
20.500
25.250
24.375
20.500
18.500
27.250
33.500
33.000
42.625

0.120

0.150

5 for 4
0.160

3 for 2

0.200

5 for 4

0.250

0.176
0.200
0.000
-0.022
-0.022
-0.044
-0.070
-0.100
-0.028
-0.143
0.133
0.029
-0.029
0.118
-0.026
-0.022
-0.029
-0.059
-0.063
-0.033
0.034
0.200
0.361
0.143
0.179
0.212
0.297
0.052
0.326
-0.018
0.107
0.774
-0.036
0.231
0.167
-0.187
0.055
-0.213
0.029
-0.209
0.045
0.087
0.328
-0.012
0.232
-0.035
0.051
-0.098
0.473
0.229
-0.015
0.299

30-Sep-93
29-Oct-93
30-Nov-93
31-Dec-93
31-Jan-94
28-Feb-94
31-Mar-94
29-Apr-94
31-May-94
30-Jun-94
29-Jul-94
31-Aug-94
30-Sep-94
31-Oct-94
30-Nov-94
30-Dec-94
31-Jan-95
28-Feb-95
31-Mar-95
28-Apr-95
31-May-95
30-Jun-95
31-Jul-95
31-Aug-95
29-Sep-95
31-Oct-95
30-Nov-95
29- Dec-95
31-Jan-96
29- Feb-96
29-Mar-96
30-Apr-96
31-May-96
28-Jun-96
31-Jul-96
30-Aug-96
30-Sep-96

6,072
6,072
9,108
9,150
9,150
9,150
9,150
9,150
9,150
9,150
9,150
9,150
9,150
9,150
9,150
9,154
9,154
9,154
9,154
9,154
9.154
9,154
9,154
9,154
11,442
11,442
11,442
11,452
11,452
11,452
11,452
11,452
11,458
11,458
11,501
11,501
11,501

50.125
47.250
25.750
21.250
21.250
20.500
17.625
16.000
15.250
13.375
13.000
17.000
14.125
16.125
14.250
12.250
14.500
17.375
16.125
16.125
17.500
23.000
27.625
28.625
25.500
19.750
19.750
24.750
23.625
24.625
33.375
36.250
36.625
37.125
37.625
37.375
37.875

3 for 2

0.200

0.250
5 for 4

0.220

Source: Center for Research on Security Prices, University of Chicago.

0.176
-0.057
-0.183
-0.175
0.000
-0.035
-0.140
-0.092
-0.047
-0.123
-0.028
0.323
-0.169
0.142
-0.116
-0.140
0.184
0.198
-0.072
0.000
0.085
0.314
0.201
0.045
0.114
-0.225
0.000
0.253
-0.045
0.042
0.355
0.086
0.010
0.014
0.013
-0.001
0.013

Ameritrade

Split adjustment

Exhibit 6 Stock Return Data for Investment Service Firms, Internet Firms, and the Aggregate Stock Market

Date

31-Jan-84
29-Feb-84
30-Mar-84
30-Apr-84
31-May-84
29-Jun-84
31-Jul-84
31-Aug-84
28-Sep-84
31-Oct-84
30-Nov-84
31-Dec-84
31-Jan-85
28-Feb-85
29-Mar-85
30-Apr-85
31-May-85
28-Jun-85
31-Jul-85
30-Aug-85
30-Sep-85
31-Oct-85
29-Nov-85
31-Dec-85
31-Jan-86
28-Feb-86
31-Mar-86
30-Apr-86
30-May-86
30-Jun-86
31-Jul-86
29-Aug-86
30-Sep-86
31-Oct-86
28-Nov-86
31-Dec-86
30-Jan-87
27-Feb-87
31-Mar-87
30-Apr-87
29-May-87
30-Jun-87
31-Jul-87
31-Aug-87
30-Sep-87
30-Oct-87
30-Nov-87
31-Dec-87

A G Edwards

0.026040
-0.111680
-0.042290
0.012050
-0.017860
0.100610
0.016670
0.178140
-0.032710
0.024150
-0.066040
-0.017170
0.331610
-0.007780
-0.036860
-0.094260
0.085970
0.102500
-0.064640
-0.036590
-0.132490
0.088240
0.099100
0.141800
0.039710
0.149310
0.083990
-0.086830
0.026070
-0.066370
-0.067630
0.104660
-0.094340
0.151040
-0.022620
-0.040740
0.334950
0.000000
0.044950
-0.122380
-0.023900
-0.104650
0.073390
0.027180
-0.071130
-0.337840
-0.174420
0.033330

Bear Stearns

-0.103450
0.193590
0.156760
0.130840
0.128720
0.065640
0.003620
-0.168520
-0.141920
0.160310
-0.145530
0.217050
-0.057320
-0.102160
0.318180
-0.022990
-0.024650
-0.121020
-0.028990
0.022090
-0.007350
0.103700
0.080270
-0.400000
-0.145830
0.023900

Lehman Bros

Mecklermedia

Merrill Lynch

-0.013280
-0.167330
-0.019140
-0.011710
-0.044780
0.119790
-0.076280
0.304570
-0.077820
0.023630
-0.091290
-0.013700
0.277780
-0.023190
-0.085820
-0.034290
0.089360
0.011720
0.040930
-0.052240
-0.141730
0.100920
0.127500
0.022300
0.152730
0.036590
0.012230
-0.102720
-0.008080
-0.054610
-0.039710
0.145110
-0.052810
0.195120
-0.074050
-0.075950
0.198630
-0.015430
-0.002920
-0.152050
-0.041380
0.010870
0.100360
0.032570
-0.031750
-0.357380
-0.153060
0.091460

Morgan
Stanley Dean
Witter

0.051150
0.013420
-0.062910
-0.070670
0.149050
-0.119400
0.160830
-0.030890
-0.129190
0.112910
-0.048610
0.036500
0.005280
0.020320
-0.003440
0.023490
0.069370
0.023730
-0.337560
-0.163930
0.148460

Netscape

Paine
Webber
-0.042860
-0.175370
0.073300
0.080510
-0.113730
0.084960
-0.090160
0.189190
-0.105300
0.029790
-0.041320
-0.046550
0.431820
-0.022220
0.026620
-0.123810
0.065220
-0.040140
-0.092530
-0.038430
-0.049180
0.008620
0.197440
0.003580
0.107140
0.068390
0.036360
-0.137430
0.051530
-0.116500
-0.010990
0.175930
-0.015590
0.172690
-0.075210
-0.063200
0.178570
-0.033540
-0.003500
-0.084210
-0.061150
0.020490
0.052210
0.023050
-0.029960
-0.474900
-0.021760
-0.128790

Raymond
James
0.040000
-0.102560
-0.050000
-0.067670
-0.072580
-0.043480
0.018180
0.214290
-0.029410
0.015150
-0.179100
-0.054550
0.430770
0.027030
0.013160
-0.025970
0.013330
0.039470
0.017720
0.025000
-0.048780
0.000000
0.256410
0.015920
0.288890
0.103450
0.171880
-0.100000
-0.007410
-0.040600
-0.187500
0.038460
-0.092590
0.081630
-0.056600
-0.026800
0.319590
0.289060
0.261940
-0.116400
-0.101800
-0.031200
-0.062070
0.169120
-0.142640
-0.352940
-0.113640
-0.038460

Yahoo

VW NYSE,
AMEX, &
Nasdaq a
-0.012910
-0.039170
0.013450
0.002730
-0.052350
0.023590
-0.020350
0.112570
0.000390
0.000130
-0.010620
0.023790
0.085730
0.017000
-0.001930
-0.002180
0.055870
0.017190
-0.000540
-0.004800
-0.039650
0.044570
0.069270
0.043060
0.009860
0.072840
0.053880
-0.008060
0.050810
0.014300
-0.059690
0.066390
-0.079140
0.049440
0.015170
-0.026540
0.128370
0.047630
0.023240
-0.017130
0.005220
0.043830
0.044050
0.037230
-0.020740
-0.224870
-0.072900
0.070410

EW NYSE,
AMEX, &
Nasdaq a
0.005760
-0.053810
0.007100
-0.019420
-0.050770
0.013800
-0.047450
0.089620
0.000270
-0.020890
-0.031410
0.005050
0.122760
0.047140
-0.008530
-0.011290
0.022930
0.003470
0.019510
-0.003410
-0.056140
0.018960
0.053270
0.029130
0.043400
0.062360
0.047720
0.015840
0.036630
0.008960
-0.073610
0.022110
-0.060490
0.024620
-0.006280
-0.034530
0.116820
0.074950
0.033090
-0.019610
0.000710
0.022010
0.034700
0.015590
-0.015510
-0.270850
-0.052300
0.027940

29-Jan-88
29-Feb-88
31-Mar-88
29-Apr-88
31-May-88
30-Jun-88
29-Jul-88
31-Aug-88
30-Sep-88
31-Oct-88
30-Nov-88
30-Dec-88
31-Jan-89
28-Feb-89
31-Mar-89
28-Apr-89
31-May-89
30-Jun-89
31-Jul-89
31-Aug-89
29-Sep-89
31-Oct-89
30-Nov-89
29-Dec-89
31-Jan-90
28-Feb-90
30-Mar-90
30-Apr-90
31-May-90
29-Jun-90
31-Jul-90
31-Aug-90
28-Sep-90
31-Oct-90
30-Nov-90
31-Dec-90
31-Jan-91
28-Feb-91
28-Mar-91
30-Apr-91
31-May-91
28-Jun-91
31-Jul-91
30-Aug-91
30-Sep-91
31-Oct-91
29-Nov-91
31-Dec-91
31-Jan-92
28-Feb-92
31-Mar-92
30-Apr-92
29-May-92
30-Jun-92
31-Jul-92
31-Aug-92

0.080650
0.062390
-0.035460
0.029410
-0.042860
0.159400
-0.006490
-0.039220
0.084080
-0.006330
-0.057320
0.042970
0.169930
-0.044690
-0.038830
-0.006130
0.154320
-0.003420
0.178380
0.087160
0.008270
-0.148150
0.103260
-0.096750
-0.115380
0.055900
0.137410
-0.104170
0.203490
-0.007920
-0.058820
-0.081460
-0.268570
0.046880
0.119400
0.095730
0.202450
0.168370
0.136940
0.019310
0.075760
-0.099720
0.198820
0.025220
0.202900
0.076310
-0.126870
0.299660
-0.056110
-0.066430
-0.088760
-0.163220
0.098770
-0.078430
-0.006130
0.043460

0.144580
0.157890
-0.054550
0.019420
-0.085710
0.093750
-0.067310
-0.041240
0.028670
0.084210
0.029130
-0.038100
0.178220
0.001010
0.025420
-0.041320
0.068710
0.034190
0.107440
0.034850
-0.083970
-0.075000
-0.034950
0.009430
-0.028040
0.060770
-0.038460
-0.020000
0.179290
-0.009170
-0.083330
-0.097780
-0.142860
-0.097220
0.124920
0.125000
0.135800
0.142610
0.125000
0.034190
0.094630
-0.128000
0.110090
-0.014880
0.016950
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0.105260
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0.217820
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0.128840
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0.006020
-0.071860

0.045340
0.051610
-0.017060
0.011000
0.000940
0.051390
-0.007180
-0.027940
0.037280
0.017650
-0.016400
0.020800
0.065940
-0.016360
0.021550
0.048530
0.039650
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0.077720
0.022280
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0.018280
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0.039930
-0.020760

0.078110
0.062010
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0.015250
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0.048480
0.000550
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0.018700
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0.019540
0.063130
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0.017030
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0.027370
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0.031610
0.019290
0.004470
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0.015750
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0.046650
0.005380
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0.036650
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0.085250
0.133650
0.077820
0.031020
0.030340
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0.034920
0.028570
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0.023860
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0.036450
0.149480
0.052010
-0.014120
-0.032890
0.005500
-0.039700
0.027280
-0.024440

30-Sep-92
30-Oct-92
30-Nov-92
31-Dec-92
29-Jan-93
26-Feb-93
31-Mar-93
30-Apr-93
28-May-93
30-Jun-93
30-Jul-93
31-Aug-93
30-Sep-93
29-Oct-93
30-Nov-93
31-Dec-93
31-Jan-94
28-Feb-94
31-Mar-94
29-Apr-94
31-May-94
30-Jun-94
29-Jul-94
31-Aug-94
30-Sep-94
31-Oct-94
30-Nov-94
30-Dec-94
31-Jan-95
28-Feb-95
31-Mar-95
28-Apr-95
31-May-95
30-Jun-95
31-Jul-95
31-Aug-95
29-Sep-95
31-Oct-95
30-Nov-95
29-Dec-95
31-Jan-96
29-Feb-96
29-Mar-96
30-Apr-96
31-May-96
28-Jun-96
31-Jul-96
30-Aug-96
30-Sep-96
31-Oct-96
29-Nov-96
31-Dec-96
31-Jan-97
28-Feb-97
31-Mar-97
30-Apr-97

-0.071430
0.115380
0.166670
-0.063840
0.089950
-0.019420
0.080200
-0.050690
-0.052430
0.051550
0.063730
0.010140
0.082570
0.046610
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0.016300
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-0.190340
-0.013990
0.071770
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0.014490
0.150000
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0.013700
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0.020830
0.224490
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0.039770
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0.000660
0.088890
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0.098050
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0.081120
0.011150
0.044120
-0.128730
0.138210

0.016260
0.024000
0.100390
0.045110
-0.014390
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0.081480
0.089040
0.133330
0.050280
0.026600
0.039900
0.042110
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0.018180
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0.114290
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0.083330
0.019820
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0.141090
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0.161900

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0.161190
0.077250
0.007970
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0.162390

-0.045050
0.000000
0.905660
-0.128710
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-0.031750
-0.311480
-0.071430
0.410260
-0.181820
0.155560
0.730770
0.566670
0.517730
0.411210
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0.126670
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0.510640
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0.090910
0.333330
0.156250
0.094590
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0.044780
0.028570
-0.034720
0.165470
-0.024690
0.050630
0.337350
-0.135140
0.062500

0.020150
0.093830
0.095710
-0.014490
0.098740
0.046650
0.045870
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0.079430
0.069310
0.074070
0.118970
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0.119450
0.036590
0.070590
0.038680
0.117020
0.057140
0.042970
0.084600
-0.112000
0.004680
-0.081080
0.120290
0.013190
0.054230
-0.006170
0.077430
0.005790
-0.068330
0.014490
0.075510
0.066410
0.146620
0.015580
0.032210
0.144730
-0.105470
0.110920

-0.051850
0.031250
0.075560
0.051890
0.015700
0.022080
0.110500
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0.102300
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0.179360
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0.041880
0.013570
0.196520
-0.049900
0.003500
0.105030
-0.069310
0.077870

0.262630
0.408000
0.571020
0.005420
0.181650
-0.379000
-0.186270
0.469880
0.115780
-0.085400
-0.365460
-0.104430
0.310950
-0.045820
0.262710
0.017900
-0.334070
-0.231020
0.032190
-0.099790

-0.106920
0.140850
0.197280
0.010360
0.035900
-0.054650
0.089470
-0.072460
0.136460
0.073730
0.034330
0.067220
0.019530
-0.099620
-0.088510
0.014080
0.097220
-0.097050
-0.047010
-0.007410
-0.007760
-0.053030
0.032000
0.015190
-0.115380
0.060870
-0.098690
0.100920
0.000000
0.166330
-0.071940
0.062020
0.160290
-0.044300
0.086090
-0.055120
0.025970
0.120250
0.011070
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0.037500
-0.036390
0.106920
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0.053650
0.085710
-0.115790
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0.018180
0.119050
0.154260
0.041290
0.280000
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-0.134100
0.203540

-0.113030
0.116790
0.209150
-0.032430
0.137650
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0.043660
0.005490
0.038250
0.003370
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0.154410
0.087380
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0.064960
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0.185190
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0.095710
0.163930
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0.014490
0.050000
0.059320
0.122580
0.011490
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0.052330
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0.035290
0.005680
0.021240
0.005560
0.005520
-0.001320
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0.119760
0.041500
0.005150
0.164100
0.065550
0.070540
0.034880
-0.050040
0.108700

-0.058820
-0.250000
-0.142860
0.090280
0.082800
-0.070590
-0.031650
-0.111110
0.992650
-0.107010
-0.070250
0.213330

0.012420
0.010900
0.040190
0.017540
0.012330
0.005450
0.025010
-0.025510
0.029420
0.005130
-0.000760
0.039340
0.000610
0.018040
-0.017350
0.019450
0.031330
-0.024090
-0.045740
0.009830
0.009500
-0.027380
0.030410
0.042830
-0.018650
0.014870
-0.037070
0.012750
0.020550
0.039620
0.026970
0.024880
0.034160
0.030840
0.040670
0.009340
0.036390
-0.011150
0.042970
0.015400
0.028090
0.016050
0.011200
0.025130
0.026720
-0.007660
-0.053390
0.032220
0.052990
0.013940
0.065730
-0.011350
0.053040
-0.000880
-0.044390
0.042460

0.011930
0.016320
0.067730
0.035650
0.066740
-0.007910
0.030880
-0.012760
0.037950
0.011970
0.014100
0.040400
0.025790
0.040090
-0.024370
0.016120
0.048920
-0.009490
-0.046020
-0.010820
-0.000270
-0.026570
0.015470
0.036790
0.004500
-0.002400
-0.040570
-0.012860
0.027710
0.027990
0.018740
0.025980
0.020500
0.048690
0.055180
0.030380
0.025990
-0.040580
0.017200
0.009780
0.033290
0.031540
0.024120
0.057330
0.061050
-0.030600
-0.078620
0.044770
0.028970
-0.019970
0.024770
-0.001420
0.061720
-0.010430
-0.047880
-0.021390

30-May-97
30-Jun-97
31-Jul-97
29-Aug-97

0.060710
0.156360
-0.011700
-0.059170

0.070490
0.051920
0.199270
-0.031400

0.207650
-0.012200
0.231480
-0.121600

-0.245100
-0.012990
0.065790
-0.006170

0.115790
0.125000
0.181340
-0.124050

0.075250
0.046820
0.220960
-0.082240

0.092380
0.084570
0.144250
0.085180

Source: Center for Research on Security Prices, University of Chicago.


aVW (EW) NYSE, AMEX, & Nasdaq represents the value-weighted (equal-weighted) index of all US publicly traded firms.

0.048530
-0.014080
0.148210
-0.043550

0.176470
-0.001640
0.057080
0.002160

-0.054950
0.093020
0.602840
0.053100

0.071250
0.044200
0.076310
-0.036450

0.085170
0.044240
0.048620
0.027020

Returns

Charles Schwab

31-Jan-84
29-Feb-84
30-Mar-84
30-Apr-84
31-May-84
29-Jun-84
31-Jul-84
31-Aug-84
28-Sep-84
31-Oct-84
30-Nov-84
31-Dec-84
31-Jan-85
28-Feb-85
29-Mar-85
30-Apr-85
31-May-85
28-Jun-85
31-Jul-85
30-Aug-85
30-Sep-85
31-Oct-85
29-Nov-85
31-Dec-85
31-Jan-86
28-Feb-86
31-Mar-86
30-Apr-86
30-May-86
30-Jun-86
31-Jul-86
29-Aug-86
30-Sep-86
31-Oct-86
28-Nov-86
31-Dec-86
30-Jan-87
27-Feb-87
31-Mar-87
30-Apr-87
29-May-87
30-Jun-87
31-Jul-87
31-Aug-87
30-Sep-87
30-Oct-87
30-Nov-87
31-Dec-87
29-Jan-88
29-Feb-88
31 -Mar-88

-0.504
-0.159
-0.094
0.083
0.385
-0.181

Quick & Reilly


-0.146
-0.008
0.151
0.015
0.039
-0.181
0.224
-0.056
0.051
-0.144
0.016
0.508
0.021
-0.026
-0.108
0.100
0.061
0.005
-0.049
-0.120
0.106
0.149
0.275
0.119
0.080
-0.003
-0.221
0.101
0.064
-0.183
-0.006
-0.170
0.346
-0.080
-0.093
0.350
0.026
-0.024
-0.109
0.008
-0.105
0.052
0.219
-0.066
-0.473
-0.037
0.075
0.010
0.084
-0.093

Waterhouse Investor Services

0.153
0.031
-0.091
0.067
-0.219
-0.040
-0.125
-0.143
0.056
0.263

29-Apr-88
31-May-88
30-Jun-88
29-Jul-88
31-Aug-88
30-Sep-88
31-Oct-88
30-Nov-88
30-Dec-88
29-Jan-89
29-Feb-89
32 -Mar-88
29-Apr-89
31-May-89
30-Jun-89
29-Jul-89
31-Aug-89
30-Sep-89
31-Oct-89
30-Nov-89
30-Dec-89
29-Jan-90
29-Feb-90
33 -Mar-88
29-Apr-90
31-May-90
30-Jun-90
29-Jul-90
31-Aug-90
30-Sep-90
31-Oct-90
30-Nov-90
30-Dec-90
29-Jan-91
29-Feb-91
34 -Mar-88
29-Apr-91
31-May-91
30-Jun-91
29-Jul-91
31-Aug-91
30-Sep-91
31-Oct-91
30-Nov-91
30-Dec-91
29-Jan-92
29-Feb-92
35 -Mar-88
29-Apr-92
31-May-92
30-Jun-92
29-Jul-92

0.034
-0.098
0.055
0.034
-0.100
0.000
0.111
-0.100
0.000
0.519
-0.159
0.029
0.141
0.163
-0.064
0.503
-0.045
-0.111
-0.069
-0.038
0.110
-0.025
0.130
0.115
-0.109
0.041
-0.032
-0.105
-0.073
-0.099
0.113
-0.059
-0.042
0.410
0.141
0.110
-0.103
0.241
0.100
0.113
0.032
0.097
0.215
-0.132
0.391
0.051
0.043
0.041
-0.175
0.013
-0.186
0.050

0.031
-0.084
0.033
-0.032
-0.017
0.044
0.000
-0.016
-0.054
0.379
-0.079
-0.036
-0.019
0.245
-0.132
0.179
0.034
-0.015
-0.060
-0.052
-0.084
-0.119
0.146
-0.028
-0.019
0.178
-0.082
-0.036
-0.152
-0.088
-0.060
0.046
0.012
0.280
0.234
0.171
-0.073
0.018
-0.042
0.154
0.055
-0.067
0.058
-0.015
0.388
-0.009
0.043
0.004
-0.249
0.004
-0.023
-0.042

-0.021
0.064
-0.200
-0.300
-0.071
0.231
-0.156
0.037
-0.214
0.364
0.000
0.267
-0.105
0.176
0.200
0.000
-0.022
-0.022
-0.044
-0.070
-0.100
-0.028
-0.143
0.133
0.029
-0.029
0.118
-0.026
-0.022
-0.029
-0.059
-0.063
-0.033
0.034
0.200
0.361
0.143
0.179
0.212
0.297
0.052
0.326
-0.018
0.107
0.774
-0.036
0.231
0.167
-0.187
0.055
-0.213
0.029

31-Aug-92
30-Sep-92
31-Oct-92
30-Nov-92
30-Dec-92
29-Jan-93
29-Feb-93
36 -Mar-88
29-Apr-93
31-May-93
30-Jun-93
29-Jul-93
31-Aug-93
30-Sep-93
31-Oct-93
30-Nov-93
30-Dec-93
29-Jan-94
29-Feb-94
37 -Mar-88
29-Apr-94
31-May-94
30-Jun-94
29-Jul-94
31-Aug-94
30-Sep-94
31-Oct-94
30-Nov-94
30-Dec-94
29-Jan-95
29-Feb-95
38 -Mar-88
29-Apr-95
31-May-95
30-Jun-95
29-Jul-95
31-Aug-95
30-Sep-95
31-Oct-95
30-Nov-95
30-Dec-95
29-Jan-96
29-Feb-96
39 -Mar-88
29-Apr-96
31-May-96
30-Jun-96
29-Jul-96
31-Aug-96
30-Sep-96
31-Oct-96
30-Nov-96

-0.086
-0.200
0.128
0.228
0.050
0.160
0.070
0.127
-0.101
0.076
0.213
0.019
0.134
0.049
0.005
-0.079
0.016
-0.087
-0.068
-0.023
0.058
0.066
-0.182
0.084
0.150
-0.037
0.196
-0.099
0.094
0.150
0.109
0.090
0.064
0.022
0.254
0.053
0.011
0.244
-0.210
0.060
-0.170
0.250
0.015
0.015
-0.052
-0.010
0.010
-0.013
0.036
-0.080
0.089
0.210

-0.021
0.025
0.043
0.212
-0.025
0.091
-0.029
0.043
-0.074
0.044
0.160
0.065
0.141
0.036
-0.010
-0.043
0.096
-0.010
-0.190
-0.097
0.029
0.024
-0.056
-0.025
0.187
-0.115
-0.005
-0.034
0.146
0.088
0.143
0.014
0.144
0.157
0.174
0.051
-0.027
0.227
-0.223
0.071
-0.192
0.134
0.132
0.124
0.034
0.113
-0.041
-0.127
0.034
-0.094
-0.009
0.084

-0.209
0.045
0.087
0.328
-0.012
0.232
-0.035
0.051
-0.098
0.473
0.229
-0.015
0.299
0.176
-0.057
-0.183
-0.175
0.000
-0.035
-0.140
-0.092
-0.047
-0.123
-0.028
0.323
-0.169
0.142
-0.116
-0.140
0.184
0.198
-0.072
0.000
0.085
0.314
0.201
0.045
0.114
-0.225
0.000
0.253
-0.045
0.042
0.355
0.086
0.010
0.014
0.013
-0.001
0.013

30-Dec-96
29-Jan-97
29-Feb-97
40 -Mar-88
29-Apr-97
31-May-97
30-Jun-97
29-Jul-97
31-Aug-97

0.053
0.226
-0.039
-0.105
0.060
0.042
0.011
0.129
0.307

0.058
0.172
0.001
-0.147
0.145
0.111
-0.003
0.160
-0.089

There are many different methods of calculating beta


Different indices and different lengths of time
This table shows betas for different indices and different lenghts
Betas
Levered

Charles Schwab
full period
VW
EW
5yr
VW
EW

92-96

5yr
VW
EW

most recent

2yr
VW
EW

most recent

Quick & Reilly

Waterhouse Investor Services

2.34
1.74

2.18
1.90

1.40
1.35

2.30
1.36

2.20
1.43

3.18
2.17

2.24
1.49

1.79
1.88

3.22
2.84

2.04
1.09

1.13
1.89

0.63
0.94

We must remember that betas obtained from stocks correspond to EQUITY betas and thus include financial risk from leverage
We use leverage and the Hamada equation to unlever the betas
Leverage
d/v
d/e
Unlevered
Betas
Assuming
35% tax rate

0.080
0.087

Charles Schwab
full period
VW
EW
5yr
VW
EW

0.000
0.000

Quick & Reilly

0.380
0.613

Waterhouse Investor Services

2.21
1.65

2.18
1.90

1.00
0.96

2.17
1.29

2.20
1.43

2.27
1.55

92-96

5yr
VW
EW

most recent

2yr
VW
EW

most recent

2.12
1.41

1.79
1.88

2.30
2.03

1.93
1.03

1.13
1.89

0.45
0.67

Using the CAPM model to get the cost of capital for the project
Risk free rate
Reasonable approach is to use the current yield on long term government bonds
If we assume that the project will last for 10 years, we use 10 yr yield
Market risk premium
One possible approach to estimate the market risk premium:

Historical average annual return of large stocks minus that of long term US government bonds over the longer p
estimate = 12.7-5.5
From exhibit 3
0.072
Using this definition of Market premium
the estimated cost for the project would be

or

k = 0.0634 + 0.072* 2.2


k = 0.0634 + 0.072* 2.07
Cost of capital for the project would oscilate around 22%

depending on the specific value of Rf and the method to get be


Another possible approach to estimate the market risk premium
Follow authors' idea that the market premium in the present day is between 4 and 6 percent
Use 5%
0.050
Using this definition of Market premium
the estimated cost for the project would be

or

k = 0.0634 + 0.05*2.2
k = 0.0634 + 0.05* 2.07
Cost of capital for the project would oscilate around 17%

depending on the specific value of Rf and the method to get be

Conclusion

The cost of capital for the project is high.


The estimated cost of capital represents the risk of real investments in the discount brokerage industry
The discount brokerage business has very high systematic risk. All of the revenues are linked to stock market ac

If Ameritrade uses debt to finance the project, the cost of capital may fall but the equity beta (and the cost of equ

VWI

EWI

-0.012910
-0.039170
0.013450
0.002730
-0.052350
0.023590
-0.020350
0.112570
0.000390
0.000130
-0.010620
0.023790
0.085730
0.017000
-0.001930
-0.002180
0.055870
0.017190
-0.000540
-0.004800
-0.039650
0.044570
0.069270
0.043060
0.009860
0.072840
0.053880
-0.008060
0.050810
0.014300
-0.059690
0.066390
-0.079140
0.049440
0.015170
-0.026540
0.128370
0.047630
0.023240
-0.017130
0.005220
0.043830
0.044050
0.037230
-0.020740
-0.225
-0.073
0.070
0.045
0.052
-0.017

0.005760
-0.053810
0.007100
-0.019420
-0.050770
0.013800
-0.047450
0.089620
0.000270
-0.020890
-0.031410
0.005050
0.122760
0.047140
-0.008530
-0.011290
0.022930
0.003470
0.019510
-0.003410
-0.056140
0.018960
0.053270
0.029130
0.043400
0.062360
0.047720
0.015840
0.036630
0.008960
-0.073610
0.022110
-0.060490
0.024620
-0.006280
-0.034530
0.116820
0.074950
0.033090
-0.019610
0.000710
0.022010
0.034700
0.015590
-0.015510
-0.271
-0.052
0.028
0.078
0.062
0.034

0.011
0.001
0.051
-0.007
-0.028
0.037
0.018
-0.016
0.021
0.066
-0.016
0.022
0.049
0.040
-0.005
0.078
0.022
-0.002
-0.029
0.018
0.018
-0.070
0.015
0.024
-0.028
0.089
-0.004
-0.009
-0.092
-0.054
-0.012
0.066
0.030
0.049
0.076
0.029
0.003
0.041
-0.044
0.047
0.027
-0.011
0.018
-0.037
0.107
-0.002
0.013
-0.024
0.014
0.007
-0.019
0.040

0.015
-0.017
0.048
0.001
-0.024
0.019
-0.012
-0.037
0.020
0.063
0.003
0.017
0.031
0.027
-0.008
0.032
0.019
0.004
-0.051
-0.008
-0.012
-0.046
0.016
0.022
-0.027
0.047
0.005
-0.027
-0.110
-0.080
-0.056
0.037
-0.004
0.085
0.134
0.078
0.031
0.030
-0.035
0.035
0.029
0.009
0.024
-0.025
0.036
0.149
0.052
-0.014
-0.033
0.006
-0.040
0.027

-0.021
0.012
0.011
0.040
0.018
0.012
0.005
0.025
-0.026
0.029
0.005
-0.001
0.039
0.001
0.018
-0.017
0.019
0.031
-0.024
-0.046
0.010
0.010
-0.027
0.030
0.043
-0.019
0.015
-0.037
0.013
0.021
0.040
0.027
0.025
0.034
0.031
0.041
0.009
0.036
-0.011
0.043
0.015
0.028
0.016
0.011
0.025
0.027
-0.008
-0.053
0.032
0.053
0.014
0.066

-0.024
0.012
0.016
0.068
0.036
0.067
-0.008
0.031
-0.013
0.038
0.012
0.014
0.040
0.026
0.040
-0.024
0.016
0.049
-0.009
-0.046
-0.011
0.000
-0.027
0.015
0.037
0.005
-0.002
-0.041
-0.013
0.028
0.028
0.019
0.026
0.021
0.049
0.055
0.030
0.026
-0.041
0.017
0.010
0.033
0.032
0.024
0.057
0.061
-0.031
-0.079
0.045
0.029
-0.020
0.025

-0.011
0.053
-0.001
-0.044
0.042
0.071
0.044
0.076
-0.036

-0.001
0.062
-0.010
-0.048
-0.021
0.085
0.044
0.049
0.027

Beta obtained using 60 months


as suggested in the book

Beta obtained using 60 months


as suggested in the book

d thus include financial risk from leverage

from Exhibit 4

Avg
1.80
1.50

2.22
1.42

Beta obtained using 60 months


as suggested in the book

2.07
1.77

Beta obtained using 60 months


as suggested in the book

1.17
1.20

10 years, we use 10 yr yield

0.0634
From exhibit 3

m US government bonds over the longer period (29-96)

f Market premium

r the project would be


0.223
0.212
project would oscilate around 22%

ecific value of Rf and the method to get beta

ween 4 and 6 percent

f Market premium

r the project would be


0.174
0.167
project would oscilate around 17%

ecific value of Rf and the method to get beta

the discount brokerage industry


he revenues are linked to stock market activity and performance

all but the equity beta (and the cost of equity) will increase with the level of leverage used.