Question
To answer this question, you will need to access the tab labeled Stock Return Data in the spreadsheet available with the assignment. The tab contains
To answer this question, you will need to access the tab labeled "Stock Return Data in the spreadsheet available with the assignment. The tab contains monthly holding period stock returns for Eli Lilly & Co. (LLY), Cummins Inc. (CMI), and Starbucks Corp. (SBUX) for the months from January 2017 through December 2021, along with monthly returns for the S&P 500 Composite Index over the same interval.
a) Using the returns on the S&P 500 Composite Index as the proxy for the overall stock-market return, estimate the monthly average return, the standard deviation of monthly returns, and a beta for each stock listed above.
b) Which of the three stocks (LLY, CMI, SBUX) has the most systematic risk? Clearly convey what measure you used to identify the amount of systematic risk.
c) Which of the three stocks (LLY, CMI, SBUX) has the most total return variability if held in isolation (i.e., not as part of a well-diversified portfolio)? Clearly convey what measure you used to identify the amount of risk of a stock held in isolation.
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