Go to finance yahoo com and download the ending monthly stock prices for Colgate Palmolive for the last 60 months Use the adjusted closing price, which adjusts for dividend payments and stock splits Next, download the ending value of the S P 500 Index over the same period For the historical risk free rate, go to the St Louis Federal Reserve website (www stlouisfed org) and find the three month Treasury bill secondary market rate Download this file What are the monthly returns, average monthly returns, and standard deviations for Colgate Palmolive stock, the three month Treasury bill, and the S P 500 for this period Beta is often estimated by linear regression A model commonly used is called the market model , which is R t R ft i i R Mt R ft t In this regression, R t is the return on the stock and R ft is the risk free rate for the same period R Mt is the return on a stock market index, such as the S P 500 index i is the regression intercept i is the slope (and the stocks estimated beta) and t represents the residuals for the regression What do you think is the motivation for this particular regression The intercept, , is often called Jensens alpha What does it measure If an asset has a positive Jensens alpha, where would it plot with respect to the SML What is the financial interpretation of the residuals in the regression

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Go to finance.yahoo.com and download the ending monthly stock prices for Colgate-Palmolive for the last 60 months. Use the adjusted closing price, which adjusts for dividend payments and stock splits. Next, download the ending value of the S&P 500 Index over the same period. For the historical risk-free rate, go to the St. Louis Federal Reserve website (www.stlouisfed.org) and find the three-month Treasury bill secondary market rate. Download this file. What are the monthly returns, average monthly returns, and standard deviations for Colgate-Palmolive stock, the three-month Treasury bill, and the S&P 500 for this period?
Beta is often estimated by linear regression. A model commonly used is called the market model, which is:

R_t R_ft = _i + _i[R_Mt R_ft] + _t

In this regression, R_t is the return on the stock and R_ft is the risk-free rate for the same period. R_Mt is the return on a stock market index, such as the S&P 500 index; _i is the regression intercept; _i is the slope (and the stocks estimated beta); and _t represents the residuals for the regression. What do you think is the motivation for this particular regression? The intercept, , is often called Jensens alpha. What does it measure? If an asset has a positive Jensens alpha, where would it plot with respect to the SML? What is the financial interpretation of the residuals in the regression?