Question 3

Company C, a newly listed company on the Alternative Investment Market (AIM) of the London Stock Exchange. You observe the following information.

Month	Feb	Jan	Dec	Nov	Oct	Sep
A (share price at end of month in pence)	256	259	239	248	238	230
FTSE100 (index)	7693	7720	7740	7687	7350	7390

Required:

(a) Estimate the beta value for Company C, using the covariance-variance approach.

(b) Identify the practical measurement issues arising from the use of

(i) the monthly share prices;

(ii) the sample period;

(iii) FTSE100.