Question 6 Single Index Model Choose any 5 shares on the FTSE100. See the list here https://www.londonstockexchange.com/indices/ftse-100/constituents/table

Using any financial database, download weekly (adjusted) closing price data for the past 3 years for each share (since December 2018).

Download weekly values for the overall FTSE100 index, e.g. on Investing.com https://www.investing.com/indices/uk-100-historical-data Finally, use the yield on the 10-year UK Treasury bond from FRED or other sites https://fred.stlouisfed.org/series/IRLTLT01GBM156N as a proxy for the risk-free rate (you will need to convert the annualised interest rate to a weekly one).

a) Use natural logs to estimate gross returns as follows =ln(Pt / Pt-1). Then regress the weekly (excess) return on each share on the weekly (excess) return of the FTSE100 index. You can do this in Excel.

b) Calculate the predicted values of the dependent variable (Y). Then, the 'residual' or prediction error = actual values - predicted value.

c) Interpret the SIM results you get for each share. Compare the results you get for each of the 5 shares. Are the key parameters (alpha and beta) statistically significant and of the expected sign?

d) Calculate the total risk for each share. Then, using the beta estimate, decompose the total risk into the systematic and firm-specific components.