When you go on the Web to find a firms beta, you do not know how recently it was computed, what index was used as a proxy for the market portfolio, or which time series of returns the calculations used. Earlier in this chapter, it was shown that when we went on the Web to find a beta for AT&T, we found the following: MSN Money (0.53), Yahoo! Finance (0.38), and Zacks (0.54).

An alternative is to compute beta yourself. A common estimation procedure is to use 60 months of return data and to use the S&P 500 Index as the market portfolio. You can obtain price data for a company and for the S&P 500 Index free from websites like Yahoo! Finance. Using monthly prices, you can compute the monthly returns, as (P_n P_{n ? 1}) P_{n 1}. Below are 60 monthly returns for AT&T and the S&P 500 Index. You can use these returns to compute AT&Ts beta. A spreadsheet, like Excel, can run a regression (go to Tool menu, select Data Analysis, and then Regression). Select AT&T returns as the y variable and S&P 500 Index return as the x variable. The coefficient for the x variable is the beta estimate. The regression will provide all the statistical information you might like. However, if you only want beta, you can simply use the SLOPE function in Excel. Or you may have learned to run a regression using statistical software.

Compute AT&Ts beta using the listed returns.

Compare your estimate with the ones found on the Web as listed.

How different will the required returns be using these betas? Compute required return using each beta (assume that the risk-free rate is 5 percent and the market return will be 13 percent).

Date AT&T S&P500 Index AT&T S&P500 Index Date -1.01% 3.60 AT&T S&P500 Index Date Aug 11 Jul 11 Jun 11 5.68% Apr 13 3 Mar 13 2.17 4 Feb 133.22 5 Jan 13 4.54 |-2.67%. |-5.56 -0.49 3.62% Dec 09 4.02% Nov 09 Oct 09 3.53 Sep 09 3.71 Aug 09-0.70 Jul 09 1.78% 5.74 1.98 3.57 3.36 7.41 0.02 5.31 9.39 8.54 -10.99 -8.57 0.78 7.48 -16.94 9.08 2.15 4.97 1.35 2.85 -0.10 3.20 2.26 6.53 -0.23 3.69 8.76 -4.74 6.88 -5.39 -8.20 1.48 5.88 2.85 -3.70 5.04 Dec 121.2 0.28 Mar 11 7.86 Feb 11 3.12 Jan 11 -4.97 Dec 10 5.70 Nov 10-2.54 Oct 10 1.16 7 Nov 12 -1.32 Oct 12 -7.18 9 Sep 12 2.88 10 Aug 12 -3.38 Jul 12 7.68 12 Jun 12 4.34 13 May 12 3.85 14 Apr 12 6.87 15 Mar 122.06 16 Feb 12 4.04 17 Jan 12-1.34 18 Dec4.35 19 Nov 11 -1.13 20 Oct 11 4.37 21 Sep 11 0.15 0.20 May 09-3.25 Apr 09 3.26 6.06 Feb 093.49 Jan 09 12.32 Dec 08-0.22 6.70 Oct 08-2.61 Sep 08-12.73 Aug 08 3.84 Jul 087.43 Jun 08 15.55 08 3.06 8 2.42 1.98 Mar 09 3.96 -6.27 -0.75 Aug 104.20 Jul 10 9.12 Jun 10-0.48 May 10 6.76 Apr 10 2.53 Mar 104.11 Feb 10 -2.15 Jan 10 -8.16 Nov 08 4.06 4.36 0.85 -0.51 10.77 -0.99 -8.60 1.07