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

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    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).

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    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.

    $2.19

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