Question

The term Beta refers to a measure of a stock’s price volatility relative to the stock market as a whole. A beta of 1 means the stock’s price moves exactly with the market. A beta of 1.6 means the stock’s price would increase by 1.6% for an increase of 1% in the stock market. A larger beta means the stock price is more volatile. The betas for the stocks of the companies that make up the Dow Jones Industrial Average are shown in Table 2.17 (Yahoo Finance, November 2014).

1. Construct a frequency distribution and percent frequency distribution.
2. Construct a histogram.
3. Comment on the shape of the distribution.
4. Which stock has the highest beta?
5. Which has the lowest beta?

Answer 1

1. Arrange the data in ascending order

2. We see that the max value is 1.84 and min = 0.04
Hence we take 10 intervals with a width of 0.2

3. Next we create the intervals and identify which value falls in each interval.

4. This put in the frequency table and the frequency percentage is calculated.

5. Histogram.

Comment on the shape of the distribution.
The plot is almost normal distributed, with a very little positive skewness.

Which stock has the highest beta?
JPMorgan Chase and Company

Which has the lowest beta?
Verizon Communications Inc.