Question

Financial analysts have estimated the returns on shares of Drucker Corporation and the overall market portfolio under various economic conditions as follows. The return for Drucker in the following three economic states of nature are forecasted to be:-18% in recession, +9% in moderate growth, and +36% in a boom. Estimates for the market as a whole in the same economic states are-12% in recession, +6% in moderate growth, and +22% in boom. The analyst considers each state to be equally likely. Using these data, compute the beta of Drucker Corporation's stock. Place your answer as a number with at least three decimal places

Answer 1

ANALYSIS OF BETA
Market condition	Probability (P)	Return of stock (Rs)	Return of Market(Rm)	Ds=Rs-avg.Rs	Dm=Rm-avg.Rm	Ds^2	Dm^2	P*Dm^2	P*Ds^2
Recession	0.333	-18	-12	-27	-17.33	729	300.4444	100.1481	243
Moderate Growth	0.333	9	6	0	0.67	0	0.444444	0.148148	0
Boom	0.333	36	22	27	16.67	729	277.7778	92.59259	243
Total	1.000					1458	578.6667	192.8889	486
Avg.Rs	9
Avg.Rm	5.33
Variance of Market	P*Dm^2	192.89
Std Deviation (Rs)	22.04540769
Std Deviation (Rm)	13.88844444
Coorelation (Cor)	0.9994	Approx.=+1
Covariance	Cor*Std.dev(Rs)*Std Dev(Rm)
Beta of Security	Covarianc(stock, market)/Variance of Market	`=(22.0454*13.8844*1)/192.89
	Answer	1.587