Question
It is possible to compute means, variances, betas, and so forth using historical data as shown in Window 12.2: Calculating Beta. For our purposes the
It is possible to compute means, variances, betas, and so forth using historical data as shown in Window 12.2: Calculating Beta. For our purposes the procedure is identical to the case of various economic states where each economic state is equally likely. Consider the following history of returns:
Year | Homer Company | Large Company Stocks |
---|---|---|
1 | 34.09% | 40.16% |
2 | 1.00% | 2.03% |
3 | 17.05% | 12.41% |
4 | 73.15% | 27.26% |
5 | 20.40% | 6.56% |
6 | 51.84% | 26.31% |
7 | 30.50% | 4.46% |
8 | 2.22% | 7.06% |
9 | 11.43% | 1.54% |
10 | 40.16% | 34.11% |
a. Compute the mean of each return series (Hint: Treat each outcome as having the same probability of recurringin this case 10%).
b. Compute the beta of Homer Company (Hint: First compute the covariance between them and the variance of the market).
Use Excel Functions Please
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