1. The annual (%) returns, assumed for years 2009-2019 (11-years) for both FedEx stock (FDX) and the NYSE Index, are shown below. The regression below to estimates the beta () for FDX: YEAR FedEx NYSE INDEX (FOX-MeanXNYSE-Mean) 2009 -1.03% 13.48% 14.70 2010 -16.97 4.92 171.53 2011 -4764 41.11 2379.02 2012 96.64 41.55 3519.01 2013 3.00 12.06 43.63 2014 0.96 -0.09 14.70 2015 6.64 9.59 -5.60 2016 365 14.04 346.95 2017 26.04 4.88 51.45 2018 7.06 3.75 -0.54 2019-30.93 -16.55 715.49 Mean 7.38997 2.12 SUM 7163.07 Variance 1436.7 413.75 COVARIANCE 716.31 Sid. Dev 37.90 20.34 CORRELATION 0.93 BETA 1.73 REGRESSION OUTPUT: Regression Statistics Multiple R 0.929009 RSquare 0.863058 Adjusted R 0347842 Standard E 14.7853 Observato ANOVA Filcance Regression 1 12399.52 12399.52 56.72105 3.57E05 Residual 9 1967.447 218.6052 Total 10 146 Coefficitandard Em Star P-value Lower Upper 95% ower 95. Opper 95.0% Intercept 3.717607 4.484525 0.828385 0.42855 6.42709 13.86231 6.42709 13.86231 X Variable 1.731149 0.229859 7531338 3.57E-65 1.211171 2.251127 1211171 2.251127 The beta, , calculated above for FDX is 1.73, the yield to maturity on a 10-year Treasury Bond (risk free rate) is 0.66% http://www.treasury.gov/resource-center/data-chart-center/interest rates/Pages/TextView.aspx?data-yield The stock market risk premium [Im-rd is 5.5%. Using the Capital Asset Pricing Model (CAPM), calculate the cost of equity capital for FDX. FDX stock's required rate of return, using the Capital Asset Pricing Model: rynx=r+[r.- r.dByox IFDX - (A) Please Explain what Beta (B) is and how is it used to determine the cost of equity capital? In this case for FDX. QUI 2017 26.04 4.88 51.45 2018 7.08 3.75 -0.54 2019-30.93 -16.55 715.49 Mean 7.38997 2.12 SUM 7163.07 Variance 1436.7 413.75 COVARIANCE 716.31 Sid. Dev 37.90 20.34 CORRELATION 0.93 BETA 1.73 REGRESSION OUTPUT: Regression Statistics Multiple R 0.929009 Square 0.363058 Adjusted R 0.847842 Standard E 14.7853 Observato ANOVA o MS F conceF Regression 1 12399.52 12399.52 56.72105 3.57E-5 Residual 9 1967447 215.6052 Total 10 1436696 Coefficientsandard Emre Star P.value Lower 95 Upper 95ower 95.Opper 95.0% Intercept 3.717607 4.484525 0.828986 0.42855 6.42709 13.86231 6.42709 13.86231 Variable 1.731349 0.229859 7531338 3.57E-05 1.211171 2.251127 1211171 2251127 The beta, , calculated above for FDX is 1.73, the yield to maturity on a 10-year Treasury Bond (risk free rate) is 0.66% http://www.treasury.gov/resource-center/data-chart-center/interest- rates/Pages TextView.aspx?data=yield The stock market risk premium [Im - I, is 5.5%. Using the Capital Asset Pricing Model (CAPM), calculate the cost of equity capital for FDX. FDX stock's required rate of return, using the Capital Asset Pricing Model: rfpx=1+[rm- rdBrox Fox (A) Please Explain what Beta () is and how is it used to determine the cost of equity capital? In this case for FDX. (B) Explain the significance of the cost of equity capital for FDX or any other stock
