# Scatter graph of S&P 500 vs WMT, beta and risk premium

See attached data files.

1. Prepare a scatter graph of S&P 500 vs. WMT, add the trend line and estimated equation. What is Beta estimate for WMT based on the equitation you've got?

2. Run regression of WMT risk premium vs. S&P 500 risk premium:

RPWMT = α + βi (RPS&P 500) + εi

a. What is your Beta estimate? Compare to part 1 Beta estimate.

b. What is R2? Explain, what does it tell you?

c. What is P-value? Explain, what does it tell you?

d. Write out the resulting regression for WMT risk premium estimate.

3. Run regression of WMT risk premium vs. S&P 500 risk premium and Consumer Sentiment Index:

RPWMT = α + β1i (RPS&P 500) + β2i (CSI) + εi

Write out the resulting regression for WMT risk premium estimate.

4. Run regression of WMT risk premium vs. S&P 500 risk premium and Disposable Personal Income (Scaled):

RPWMT = α + β1i (RPS&P 500) + β2i (DPI) + εi

Write out the resulting regression for WMT risk premium estimate.

5. Run regression of WMT risk premium vs. S&P 500risk premium, Consumer Sentiment Index and Disposable Personal Income (Scaled):

RPWMT = α + β1i (RPS&P 500) + + β2i (CSI) + β3i (DPI) + εi

Write out the resulting regression for WMT risk premium estimate.

6. Out of 4 regressions, which one is the best and why? (List 2 reasons with explanations).

© BrainMass Inc. brainmass.com June 4, 2020, 12:48 am ad1c9bdddfhttps://brainmass.com/statistics/regression-analysis/scatter-graph-beta-risk-premium-360989

#### Solution Preview

Please refer to the attachment for the solutions.

Prepare a scatter graph of S&P 500 vs. WMT, add the trend line and estimated equation. What is Beta estimate for WMT based on the equitation you've got?

Solution:

The trend line equation is given as:

y=0.2695x-0.0026

The Beta estimate for WMT based on the trend line equation is 0.2695.

Run regression of WMT risk premium vs. S&P 500risk premium:

〖RP〗_WMT = α + βi (〖RP〗_(S&P 500)) + εi

What is your Beta estimate? Compare to part 1 Beta estimate.

What is R2? Explain, what does it tell you?

What is P-value? Explain, what does it tell you?

Write out the resulting regression for WMT risk premium estimate.

Solution:

Beta estimate = 0.2695. This is same as the Beta estimate in part 1. ...

#### Solution Summary

A scatter graph of S&P 500 versus WMT, beta and risk premiums are examined.