3. Use the market model to estimate the beta for Rio Tinto using the last 36 months of returns (the regression procedure in Excel is one easy way to do this). Plot the monthly returns on Rio Tinto against the index and also show the fitted line. Joey Moss, a recent finance graduate, has just begun his job with the investment firm of Covili and Wyatt. Paul Covili, one of the firm’s founders, has been talking to Joey about the firm’s investment portfolio.

As with any investment, Paul is concerned about the risk of the investment as well as the potential return. More specifically, because the company holds a diversified portfolio, Paul is concerned about the systematic risk of current and potential investments. One such position the company currently holds is shares in Rio Tinto Ltd. Rio Tinto is the well-known UK and Australia registered mining and exploration company.

Covili and Wyatt currently uses a commercial data vendor for information about its positions. Because of this, Paul is unsure exactly how the numbers provided are calculated. The data provider considers its methods proprietary, and it will not disclose how share betas and other information are calculated. Paul is uncomfortable with not knowing exactly how these numbers are being computed and also believes that it could be less expensive to calculate the necessary statistics in-house. To explore this question, Paul has asked Joey to do the following assignments.