Calculate the beta for corporation, Business Economics

1.) Calculate the beta for your corporation.  First you need to calculate the monthly return for your corporation for the recent 60-month period (use April 2006 through March 2011).  Get the monthly stock price and cash dividend data from the website www.finance.yahoo.com.  Go to the "historical prices" section after entering the ticker symbol.  You want the closing price at the end of March 2006 through the end of November 2011 (you need the March 2006 closing price to calculate the April 2006 return).  On the spreadsheet show the closing price for each month, the closing price at the end of the previous month, and the cash dividend paid during each month (yes, many will be "0"months in the dividend column when no dividends were paid).  Do not use the "adjusted close" prices.  Calculate the percentage rate of return each month.  Recall that it is calculated as follows.  If the price at the end of this month is $10.75, the price at the end of the previous month was $10.25, and a $0.20 dividend was paid during the month, the percentage return this month would be:

[(10.75 - 10.25 + 0.20)/10.25] x 100 = 6.8%

Before continuing, look at the data for the time period under consideration and check for any stock splits or stock dividends.  (These are rare, so you probably will not have any, but they do happen.)  These are "flagged" just like when a cash dividend is paid, so if one occurred you will know it.  If any of these occur you must adjust the stock price or your return calculation will be incorrect in that month.  For example, suppose that the stock price at the end of January was $20, and it was $13 at the end of February, and a $1 dividend was paid February 5th.  On February 15th there was a 3-for-2 stock split.  The February return would not be: [(13 - 20 + 1)/20] x 100 = -30%.

It would be: [(13 x (3/2) - 20 + 1)/20] x 100 = 2.5%

Or: {[13 - 20 x (2/3) + 1(2/3)]/20 x (2/3)]} x 100 = 2.5%

Notice that you must convert one or the other stock price in the month of the split.  If there happens to be a dividend in that month (usually there is not) the dividend value must be consistent with the price adjustment that you made.

You now need to create the monthly return for the Standard and Poor's 500 index(S&P 500) for the same time period (the "market" return).  Obtain the data from the same source using the SPY symbol.  This is an exchange traded fund (ETF) based on the S&P 500.  Calculate the monthly return in the same way as you did for your stock.  To check that you are doing this correctly you should find that the closing value in December 2009 was $111.44, in November 2009 it was $109.94, and a $0.59 dividend was paid during December (on December 18 to be exact).  So, the December 2009 S&P 500 return is: [(111.44 - 109.94 + 0.59)/109.94]x 100 =0.019 or 1.9%.

Once you have the monthly return column for your corporation and the S&P 500, use the regression analysis capability of Excel to estimate beta.  The monthly return on your corporation is the "dependent," or Y variable, and the monthly return on the S&P 500 is the "independent," or X variable.  From the regression output that Excel produces identify: the beta (slope coefficient), the 95% confidence interval for the beta estimate, the alpha (intercept or constant term), and the R-squared.  Show (write out) the regression results from Excel in equation form. 

Compare your beta estimate with that reported on the Yahoo! Finance website for your corporation (look at the Key Statistics page).  Print out this screen with the beta.  Here's the "scavenger hunt" part of the project.  Find another beta estimate from the web and print out this page.

Posted Date: 2/26/2013 1:40:52 AM | Location : United States







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