In: Finance
The table lists the monthly total returns on Adobe Systems Inc. common stock and the market rates of return for a 24-month period. Observation Month Adobe rate of return (%) Market rate of return (%) 1 Aug 2014 3.83 4.18 2 Sep 2014 -3.77 -2.11 3 Oct 2014 1.34 2.74 4 Nov 2014 5.08 2.43 5 Dec 2014 -1.33 -0.01 6 Jan 2015 -3.54 -2.77 7 Feb 2015 12.79 5.78 8 Mar 2015 -6.52 -1.01 9 Apr 2015 2.87 0.42 10 May 2015 3.98 1.39 11 Jun 2015 2.43 -1.70 12 Jul 2015 1.21 1.65 13 Aug 2015 -4.17 -6.00 14 Sep 2015 4.65 -2.95 15 Oct 2015 7.83 7.86 16 Nov 2015 3.16 0.56 17 Dec 2015 2.71 -2.04 18 Jan 2016 -5.12 -5.67 19 Feb 2016 -4.47 -0.02 20 Mar 2016 10.16 7.03 21 Apr 2016 0.45 0.63 22 May 2016 5.57 1.79 23 Jun 2016 -3.70 0.23 24 Jul 2016 2.16 3.97 Estimate beta to two decimal places for Adobe based on this data. Hint: see Examples 16 and 17 in the lecture. 1.73 1.27 1.58 1.04 1.42
Solution :-
(X) | (M) | (Dm) | (Dm*Dm) | (Dx) | (Dx*Dm) | ||
Date | Security Return | Market Return | (M - AvgM) | (M - AvgM)^2 | ( X - Avg X) | (M - AvgM)*(X - Avg X) | |
1-Aug | 3.83 | 4.18 | 3.498 | 12.233 | 2.263 | 7.916 | |
2-Sep | -3.77 | -2.11 | -2.793 | 7.798 | -5.337 | 14.903 | |
3-Oct | 1.34 | 2.74 | 2.058 | 4.233 | -0.227 | -0.466 | |
4-Nov | 5.08 | 2.43 | 1.748 | 3.054 | 3.513 | 6.139 | |
5-Dec | -1.33 | -0.01 | -0.693 | 0.480 | -2.897 | 2.006 | |
6-Jan | -3.54 | -2.77 | -3.453 | 11.920 | -5.107 | 17.631 | |
7-Feb | 12.79 | 5.78 | 5.098 | 25.985 | 11.223 | 57.211 | |
8-Mar | -6.52 | -1.01 | -1.693 | 2.865 | -8.087 | 13.687 | |
9-Apr | 2.87 | 0.42 | -0.263 | 0.069 | 1.303 | -0.342 | |
10-May | 3.98 | 1.39 | 0.708 | 0.501 | 2.413 | 1.707 | |
11-Jun | 2.43 | -1.70 | -2.383 | 5.676 | 0.863 | -2.057 | |
12-Jul | 1.21 | 1.65 | 0.968 | 0.936 | -0.357 | -0.345 | |
13-Aug | -4.17 | -6.00 | -6.683 | 44.656 | -5.737 | 38.335 | |
14-Sep | 4.65 | -2.95 | -3.633 | 13.195 | 3.083 | -11.200 | |
15-Oct | 7.83 | 7.86 | 7.178 | 51.517 | 6.263 | 44.955 | |
16-Nov | 3.16 | 0.56 | -0.123 | 0.015 | 1.593 | -0.195 | |
17-Dec | 2.71 | -2.04 | -2.723 | 7.412 | 1.143 | -3.113 | |
18-Jan | -5.12 | -5.67 | -6.353 | 40.354 | -6.687 | 42.477 | |
19-Feb | -4.47 | -0.02 | -0.703 | 0.494 | -6.037 | 4.241 | |
20-Mar | 10.16 | 7.03 | 6.348 | 40.291 | 8.593 | 54.546 | |
21-Apr | 0.45 | 0.63 | -0.053 | 0.003 | -1.117 | 0.059 | |
22-May | 5.57 | 1.79 | 1.108 | 1.227 | 4.003 | 4.434 | |
23-Jun | -3.70 | 0.23 | -0.453 | 0.205 | -5.267 | 2.383 | |
24-Jul | 2.16 | 3.97 | 3.288 | 10.808 | 0.593 | 1.950 | |
Average / Sum | 1.567 | 0.6825 | 285.92245 | 296.8618 | |||
AVG(B4:B27) | AVG(C4:C27) | SUM(E4:E27) | SUM(G4:G27) | ||||
Variance of Market = | (Sum of Dm*Dm)/n = 285.92/24 | 11.913 | |||||
Covariance of Security and Market = | (Sum of Dm*Dx)/n = 296.86/24 | 12.369 | |||||
Beta | = | Cov(s.m)/ Var(m) | = | 12.369/11.913 | 1.038 | ||
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