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Beta Calcularion

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1. Find a low-risk stock -
Walmart or Kellogg would be a good candidate but any are welcome. Use monthly returns for the most recent three years to confirm that the beta is less than 1.0. Now estimate the annual standard deviation for the stock and the S&P index, and the correlation between the returns on the stock and the index. Forecast the expected return for the stock, assuming the CAPM holds, with a market return of 12% and a risk-free rate of 5%.

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Solution Summary

This solution will help to find out value of beta, expected rate of return using CAPM, standard deviation and the correlation of returns between the company and the index.

Solution provided by:
Jayant Kumar, MBA
Education
  • MBA, Indian Institute of Finance
  • Bsc, Madras University
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