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In: Finance

Monthly adjusted closing prices for Stock A for the months of November, October, Sept, Aug, July,...

Monthly adjusted closing prices for Stock A for the months of November, October, Sept, Aug, July, June and May are $98, 100, 90, 100, 110, 105, 100 respectively. The corresponding market index are $100, 105, 110, 115, 118, 120 and 118. Based on the above data,

1. The annualized volatility of stock A is...

2. The beta of stock A is...

3. If the market index goes up from $100 to $120, what is the estimated percentage change in stock A

Solutions

Expert Solution

A B C D E F G H I J
2 Price Return
3 Stock A Market Stock A Market
4 May 100 118
5 June 105 120 5.00% 1.69% =(E5-E4)/E4
6 July 110 118 4.76% -1.67%
7 August 100 115 -9.09% -2.54%
8 September 90 110 -10.00% -4.35%
9 October 100 105 11.11% -4.55%
10 November 98 100 -2.00% -4.76%
11 Average -0.04% -2.69% =AVERAGE(G5:G10)
12 St. Dev. 8.46% 2.48% =STDEV.S(G5:G10)
13 Covariance with market 0.051% =COVARIANCE.S(F5:F10,G5:G10)
14 1)
15
16 Hence the volatility of the Stock A is 8.46%
17
18 2)
19
20 Beta of stock A = Cov (rA,rM)/ Var(rM)
21 =0.051% / (2.48%^2)
22 0.83
23
24 Hence Beta of stock A is 0.83
25
26 3)
27
28 Return of the market =($120 - $100)/$100
29 20.0%
30
31 Estimated % change in stock A =Beta for Stock A*Return on market
32 =0.83*20%
33 16.61% =D24*D29
34
35 Estimated % change in stock A 16.61%
36

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