A firm's beta can be estimated from the slope of the characteristic line (best fit line). Following a) to i) to estimate the betas and costs of equity for Polaris and Coca-Cola Inc. 1. Estimate raw beta and adjusted beta () - (Please save Excel file(s) a) Go to finance.yahoo.com, enter the symbol for Polaris (PII), and click on Search. Click on Historical Data; then enter starting and ending dates that correspond to the most recent five years. Download five years of monthly adjusted closing prices for Polaris. Calculate monthly returns for the past 5 years. b) Repeat the process to get comparable data for the S&P 500 Index (symbol ^GSPC). Download the data and copy it into the same spreadsheet as Polaris with dates aligned. Calculate the monthly returns for the past 5 years. c) Run regression using Data Analysis Tool with the monthly return for Polaris as the Input Y Range and the monthly return for S&P 500 as the Input X Range. Report the beta of Polaris. Is this a raw beta or adjusted beta? d) What is the adjusted beta for Polaris using Blume (1971) adjustment?

2. Identify market return (Rm): e) Download monthly adjusted closing prices for S&P 500 index (ticker symbol ^GSPC) for the past 15 years from finance.yahoo.com and calculate monthly returns of S&P 500 index. f) Calculate the average monthly return of S&P 500 index based on the fifteen years' data in e) and annualize the monthly index return to annualized return of the index. 3. Apply CAPM to estimate cost of equity for 3M(rE): g) Report 10-year Treasury bond yield through WSJ.com (https://www.wsj.com/market- data?mod=nav_top_subsection). h) Apply capital asset pricing model to estimate the cost of equity for PII. You can use 10-year Treasury bond yield as the proxy of risk-free rate and the annualized S&P 500 index return in f) as the expected market return in your CAPM [ = + ( )]. i) Repeat part (a) to (d) and (g) to (h) to find estimate the adjusted beta and cost of equity for Coca-Cola (KO). 4. Analysis:

j) Which of the stocks (PII and KO) would you classify as defensive? Which would be classified as aggressive? Do the beta coefficients for the firms make sense given the industries in which these firms operate? Does the risk-return relationship make sense for PII and KO? Briefly explain.