This problem illustrates how beta coefficients are estimated and uses material covered in the appendix to this

Question:

This problem illustrates how beta coefficients are estimated and uses material covered in the appendix to this chapter. It may be answered using any program that performs linear regression analysis, (e.g., Excel) or the beta calculation in the Investment Analysis programs. The following information is given:

a) Using regression analysis, compute the estimated equations relating the return on stock X to the return on the market and the return on stock Y to the return on the market. According to the equations, what is each stock's beta coefficient? What does each beta coefficient imply about the systematic risk associated with each stock?
b) What is the difference between the return on each stock given by the estimated equation for period 10 and the actual return? What may account for any differences in the estimated return and the actual return? (To answer this question, use the estimated equation, and compare the results with the actual results.)
c) What is the R2 for each equation? Interpret the R2. What does the R2 imply about the other sources of risk as they apply to stocks X and Y?

Stocks
Stocks or shares are generally equity instruments that provide the largest source of raising funds in any public or private listed company's. The instruments are issued on a stock exchange from where a large number of general public who are willing... Beta Coefficient
Beta coefficient is a measure of sensitivity of a company's stock price to movement in the broad market index. It is an indicator of a stock's systematic risk which is the undiversifiable risk inherent in the whole financial system. Beta coefficient...