Question

You are given the following information concerning a stock and the market:

	Returns
Year	Market			Stock
2011		20	%		32	%
2012		10			10
2013		20			4
2014		−15			−29
2015		37			16
2016		15			16

a. Calculate the average return and standard deviation for the market and the stock. (Use Excel to complete the problem. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

b. Calculate the correlation between the stock and the market, as well as the stock’s beta. (Use Excel to complete the problem. Do not round intermediate calculations. Round your correlation answer to 2 decimal places and beta answer to 4 decimal places.)

Answer 1

* x NI : xv fx A B C D E F G H I J K L M N O P A 1 2 3 a) Market Stock b c = b - 14.5 e f g=f-8.17 i=ctg Return(M)- Return(M) ER(M) Return(s) Return(s) - ER(S) [Return(M) - ER(M)] * [Return(s) - ER(S)] 5.50 2011 2011 2012 2013 2014 2015 2016 2012 20.00 10.00 20.00 - 15.00 37.00 15.00 87.00 d=c*c Square of [Return(M)- ER(M)] 30.25 20.25 30.25 870.25 506.25 0.25 1457.50 -4.50 5.50 -29.50 32.00 10.00 4.00 -29.00 16.00 16.00 49.00 2013 2014 2015 2016 h=g*g Square of [Return(s) - ER(S)] 567.87 3.35 17.39 1381.61 61.31 61.31 2092.83 23.83 1.83 -4.17 -37.17 7.83 7.83 131.07 -8.24 -22.94 1096.52 176.18 3.92 1376.50 0.50 Expected Return of Market = 87 / 6 ER(M) = 14.50% Expected Return of Stock = 49/6 ER(S) = 8.17% Standard Deviation of Market = (1457.5 / 6)^(1/2) SD(M) = 15.59% Standard Deviation of Stock = (2092.83 / 6)^(1/2) SD(S) = 18.68% b) Correlation {(xi – 7)(yi - 5) Y {(x; – x)2 E(yi - y)2 ... | Co-relation Sheet90 [ ... 1 A A O 21:37 ENG 05-11-2019 En

... X N45 x V fic A B C D E F G H I J K L M N O P Standard Deviation of Market = (1457.5 / 6)^(1/2) SD(M) = 15.59% Standard Deviation of Stock = (2092.83/6)^(1/2) SD(S) = 18.68% 22 b) Correlation (xi – 7)(yi - 5) 2(x; – 3)2 [(y; – )2 = 1376.5/(1457.50*2092.83)^(1/2) = 0.79 Stock's Beta = Correlation * (SD of Stock / SD of Market) = 0.79 * (0.1868/0.1559) = 0.95 46 ... co-relation Sheet90 [ ... A A O 21:37 ENG 05-11-2019