Q1

A security analyst is in the process of measuring the cost of capital of XYZ shares. He has collected the following monthly data for the period from 2000-2005 (60 months):

rit = 60 observations of the returns on the XYZ shares over the 60-month period (one each month)

rMt = 60 observations of the returns on the S&P 500 index over the sample period (one each month)

rft = 60 observations of the risk-free rate (one each month)

The CAPM equation is estimated through the following regression:

SUMMARY OUTPUT Regression Statistics Multiple R 0.5471493 R Square 0.2393723 Adjusted R Square 0.2872925 Standard Error 0.0534458 Observations 60 ANOVA of 55 Ms F Signrbonce F Regression 1 0.0707912 0.070791 24.7829 6.07853EL06 Residual 58 0165674224 0.002856 Total 59 0.236465423 Coefb'ents Standard Error tStot Puuoiue Lower9596 Upper9596 tower95.0% Upper95.0% Intercept 0.0101746 0006900474 1.474474 014576 0003638228 0023987372 0.m3638228 0.023987372 MRP 1.1135266 0223579004 4.978244 6.1E06 0665786441 1561270789 0.665786441 1561270789 Where intercept = 3;, MRP = rm- r, 9;: = error term