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Calculate excess returns for series of prices downloaded

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Reference no: EM132616005

Using the Yahoo! Finance website, search for Bank of Nova Scotia (BNS.TO) by finding its stock symbol. If you are unable to locate the prices for BNS.TO, use prices for BNS (the Bank of Nova Scotia observed in U.S. dollars at the New York Stock Exchange). For the purpose of this question, assume that the Canadian dollar and the U.S. dollar have been exchanged one for one.

Download the following sources of data and answer the questions below.

  • From the Yahoo! Finance website, download historical prices for the stock from January 1, 2004 through January 1, 2012, on a monthly basis.
  • Also from the Yahoo! Finance website, download corresponding monthly prices for the S&P/TSX Comp index.
  • historical data for 3-month T-Bill rates (Excel file).

Note: Where appropriate, include your answer to this problem in the same Word file as your other answers. Also submit an Excel file to show your work.

1. Calculate excess returns for both series of prices downloaded from the Yahoo! Finance website (BNS and S&P/TSX Comp Index). Prior to that, make sure the data is sorted in ascending order (i.e., first row has the oldest data). The final spreadsheet should have the two series of returns you downloaded and calculated from Yahoo! Finance. Make sure all data is expressed in the same units.

2. Using the Tools menu in Excel (Tool Pack has to be installed if Excel does not show it), perform regression analyses using the Market Model for BNS. 

Clearly provide the regression results in a table with an explanation for the coefficients obtained, and clear interpretation. Specifically, for each regression provide:

  • Dependent Variable
  • Independent Variable
  • Intercept
  • Beta Value
  • Firm Specific Risk

3. Answer the questions below.

a. How well does the S&P/TSX Comp Index movement explain the variability of the return on BNS stock?

b. What is the alpha of the BNS stock?

c. Calculate the standard deviation of the stock return (using the equation for R2 =β2σM2/σ2,and the individual regression results).

d. Calculate systematic risk and firm specific risk for the stock.

Reference no: EM132616005

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