Project Tasks: Part 2 1. After you have received your instructor'...

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Project Tasks:
Part 2
1. After you have received your instructor's approval for Part 1, use the return data to calculate a beta estimate based upon your 60-month return data for each common stock by using the follow ing MS Excel function:

-SLOPE(Y values, x values)

For each com m on stock, the Y and x values in the SLOPE function will be stock returns and S& P 500 index returns, respectively.

2. Compare your beta estimates, using the SLOPE function, with the beta estimates from http://Finance.yahoocom or any other website and answer the following questions:
fi Discuss why the estimates may differ.
fi Which stock appears to have the highest and lowest level of system at ic risks?
fi How do these system at ic risk levels relate to the standard definitions of the stock returns calculated in Part: I7
fi Rank the stocks by their beta risks and total risk n standard deviations. Are the rankings identical? Discuss your findings.

3. If the risk-free rate over the 60-month data period averaged D .2 percent per month (0.002), calculate the difference between the average monthly return for each common stock and the S&P 500 index over or below the risk-free rate.

4. Use CAPM and beta estimates for each stock, as well as the average return on the S&P index to estimate the Expected Monthly Return for each stock over the 60-month data period. Then, answer the follow ing questions:

fi How dil the actual performance of the stocks compare with the Expected Monthly Returns?
fi Based on CAPM, which stocks outperform ed the stock index and by how much?
fi Calculate the average abnormal monthly returns for each stock over the 60-month period.

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