Satya
For Q. 6 you would need to use another formula as below:
Beta (β) = {r (i, m) * SDi}/ SDm,
Where r (i, m) is the correlation between the stock return ‘i’ and the market return m, SDi is the standard deviation of the stock return and SDm is the standard deviation of the market return.
Note, standard deviation is the square root of variance.
Hence Beta = 0.678 * SQRT(0.0456) / SQRT(0.0567)
= 0.608
Also, SQRT(0.0456) = 0.213542
SQRT(0.0567) = 0.238118
You need to take square root of variance to get the standard deviation. Students feed the variance values and calculate the Beta value. This is a common mistake.
Sep 11 2012 03:26 PM