Mr. Prashant Gupta is interested in investing in equity shares of Infosys and Hamdard. Infosys Technologies Ltd. (NASDAQ: INFY) was started in 1981 by seven people with US$ 250. Today, it is a global leader in the "next generation" of IT and consulting with revenues of over US$ 4 billion. It offers span business and technology consulting, application services, systems integration, product engineering, custom software development, maintenance, re-engineering, independent testing and validation services, IT infrastructure services, and business process outsourcing. Hamdard (Wakf) Laboratories, India is a famous pharmaceutical company in India known for its Unani and Ayurvedic products. It is the world's largest manufacturer of Unani medicines some of its more famous products include Safi, Sharbat Rooh Afza, Cinkara, Roghan Badam Shirin, and Pachnol. It is associated with Hamdard Foundation, India.

Being conservative in nature, he wants to determine the risk associated with investments. In specific terms, he wants to seek data related to both the levered and unlevered beta of these companies. He approaches Nitin Shah, a financial consultant to do the needful. Nitin has collected the relevant information detailed below:

Number

(MONTHS)

INFOSYS*

HAMDARD*

S&P CNX NIFTY**

1

0.1455

0.0432

0.0654

2

0.1291

0.307

0.1536

3

-0.1036

-0.0498

-0.0749

4

-0.0643

-0.0369

0.0473

5

-0.0673

-0.0272

-0.0178

6

0.1361

0.0286

-0.0291

7

-0.0111

-0.1088

-0.1465

8

0.0452

-0.1338

0.0194

9

0.0277

0.0913

0.0663

10

0.0581

0.011

-0.0022

11

0.0313

0.0581

0.0854

12

0.1021

0.1043

0.0127

13

0.1652

0.0876

0.0914

14

-0.0237

0.0617

0.0604

15

-0.0581

0.0877

-0.0099

16

-0.0077

0.14

0.0119

17

-0.0401

--0.0369

-0.008

18

-0.0589

0.0473

-0.0605

19

0.1335

0.1054

0.0746

20

0.0693

0.0249

0.0596

21

-0.0391

0.1082

0.048

22

-0.0086

0.048

0.0378

23

0.0196

0.068

0.0813

(i) Monthly returns on equity shares of Infosys and Hamdard for a period of 2 years (w.e.f. October 2006 to September 2008) along with a portfolio of S&P CNX NIFTY.

(ii) Return on 364-days treasury bills issued by the Government of India for the period 2007-08 is 5.15 percent per annum and 0.419 per month. This rate is to be used as a proxy for a risk-free rate of return.

(iii) Debt-equity ratio (based on the average of 2004 to 2008) is 1.6 percent for Wipro and 31.4 percent for Dabur.

(iv) Corporate tax is 35 percent.

Required

1. Compute the Beta and interpret it for Prashant. Examine different circumstances with analysis of data.