Question

In: Finance

The table lists the monthly total returns on Adobe Systems Inc. common stock and the market...

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

Solutions

Expert Solution

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

If there is any doubt please ask in comments


Related Solutions

The table lists the monthly total returns on Dish Network Corp. common stock and the market...
The table lists the monthly total returns on Dish Network Corp. common stock and the market rates of return for a 24-month period. Observation Month Dish rate of return (%) Market rate of return (%) 1 Aug 2014 4.75 4.18 2 Sep 2014 -0.35 -2.11 3 Oct 2014 -1.44 2.74 4 Nov 2014 24.76 2.43 5 Dec 2014 -8.21 -0.01 6 Jan 2015 -3.48 -2.77 7 Feb 2015 6.67 5.78 8 Mar 2015 -6.64 -1.01 9 Apr 2015 -3.43 0.42...
You have just done a regression of monthly stock returns of Royal Inc., on monthly market...
You have just done a regression of monthly stock returns of Royal Inc., on monthly market returns over the past five years and have come up with the following regression: ?" =0.03+1.4×?+ The variance of the stock is 50%, and the variance of the market is 20%. The current risk-free rate is 3% (it was 5% one year ago) and the market risk premium is 8.76%. The stock is currently selling for $50, down $4 over the past year; it...
Consider the data contained in the table below, which lists 30 monthly excess returns to two...
Consider the data contained in the table below, which lists 30 monthly excess returns to two different actively managed stock portfolios (A and B) and three different common risk factors (1, 2, and 3). (Note: You may find it useful to use a computer spreadsheet program such as Microsoft Excel to calculate your answers.) Period Portfolio A Portfolio B Factor 1 Factor 2 Factor 3 1 1.00 % 0.00 % 0.02 % -0.99 % -1.73 % 2 7.52 6.61 6.85...
The following table lists returns on the market portfolio and on Microsoft, each year from 1989...
The following table lists returns on the market portfolio and on Microsoft, each year from 1989 to 1998. Year Microsoft (%) Market Portfolio (%) 1989 80.95 31.49 1990 -47.37 -3.17 1991 31 30.57 1992 132.44 7.58 1993 32.02 10.36 1994 25.37 2.55 1995 -28.57 37.57 1996 0.00 22.68 1997 11.67 33.10 1998 36.19 28.32 A) Estimate the covariance in returns between Microsoft and the market portfolio. B) Estimate the variances in returns on both investments. C) Estimate the beta for...
Assume that stock market returns have the market index as a common factor, and that all...
Assume that stock market returns have the market index as a common factor, and that all stocks in the economy have a beta of 1.3 on the market index. Firm-specific returns all have a standard deviation of 35%. Suppose that an analyst studies 20 stocks, and finds that half have an alpha of +1.8%, and the other half an alpha of –1.8%. Suppose the analyst buys $2.0 million of an equally weighted portfolio of the positive alpha stocks and shorts...
Assume that stock market returns have the market index as a common factor, and that all...
Assume that stock market returns have the market index as a common factor, and that all stocks in the economy have a beta of 1.6 on the market index. Firm-specific returns all have a standard deviation of 20%. Suppose that an analyst studies 20 stocks and finds that one-half of them have an alpha of +2.4%, and the other half have an alpha of −2.4%. Suppose the analyst invests $1.0 million in an equally weighted portfolio of the positive alpha...
Assume that stock market returns have the market index as a common factor, and that all...
Assume that stock market returns have the market index as a common factor, and that all stocks in the economy have a beta of 1.9 on the market index. Firm-specific returns all have a standard deviation of 40%. Suppose that an analyst studies 20 stocks and finds that one-half of them have an alpha of +2.8%, and the other half have an alpha of −2.8%. Suppose the analyst invests $1.0 million in an equally weighted portfolio of the positive alpha...
Assume that stock market returns have the market index as a common factor, and that all...
Assume that stock market returns have the market index as a common factor, and that all stocks in the economy have a beta of 1.8 on the market index. Firm-specific returns all have a standard deviation of 40%. Suppose that an analyst studies 20 stocks and finds that one-half of them have an alpha of +2.8%, and the other half have an alpha of −2.8%. Suppose the analyst invests $1.0 million in an equally weighted portfolio of the positive alpha...
Assume that stock market returns have the market index as a common factor, and that all...
Assume that stock market returns have the market index as a common factor, and that all stocks in the economy have a beta of 1.2 on the market index. Firm-specific returns all have a standard deviation of 25%. Suppose that an analyst studies 20 stocks and finds that one-half of them have an alpha of +1.6%, and the other half have an alpha of −1.6%. Suppose the analyst invests $1.0 million in an equally weighted portfolio of the positive alpha...
Assume that stock market returns have the market index as a common factor, and that all...
Assume that stock market returns have the market index as a common factor, and that all stocks in the economy have a beta of 1.9 on the market index. Firm-specific returns all have a standard deviation of 40%. Suppose that an analyst studies 20 stocks and finds that one-half of them have an alpha of +2.8%, and the other half have an alpha of −2.8%. Suppose the analyst invests $1.0 million in an equally weighted portfolio of the positive alpha...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT