In: Finance
Characteristic Line
You are given the following set of data:
Historical Rates of Return | |||||
Year | NYSE | Stock Y | |||
1 | 4.0 | % | 3.5 | % | |
2 | 14.3 | 17.7 | |||
3 | 19.0 | 9.2 | |||
4 | - 14.7 | - 9.0 | |||
5 | - 26.5 | - 12.2 | |||
6 | 37.2 | 32.1 | |||
7 | 23.8 | 6.7 | |||
8 | - 7.2 | 3.5 | |||
9 | 6.6 | 13.9 | |||
10 | 20.5 | 22.7 | |||
11 | 30.6 | 17.0 | |||
Mean = | 9.8 | % | 9.6 | % | |
σ = | 19.6 | % | 13.1 |
% |
Use a spreadsheet or a calculator with a linear regression function to estimate beta. Round your answer to two decimal places.
Beta =
Give a verbal interpretation of what the regression line and the
beta coefficient show about Stock Y's volatility and relative risk
as compared with those of other stocks. Round your answers to the
nearest whole.
Stock Y is about ______ percent as volatile as the market; thus,
its relative risk is about ______ percent of that of an average
firm.
Determination of Beta:
Hence, the beta is 0.59.
Stock Y is about 59% percent as volatile as the market; thus, its relative risk is about 59% percent of that of an average firm.
Reason:
Beta is termed as the risk related with a security or a portfolio corresponding to the remainder of the market. The beta coefficient is a method of deciding how much a stock or security may move in contrast with the market.