Solution-Calculate the beta systematic risk measure

Calculate the beta systematic risk measure

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Reference no: EM133060539

The goal of this exercise is to use stock price data to calculate the beta (systematic risk measure) for Archer Daniels Midland (ADM).

Start by downloading the monthly stock prices and dividends for Archer Daniels and the S&P 500 in the Excel spreadsheet on the course website. Use the price and dividend information to compute monthly rates of return for each series over the entire period for which data are available.
Using either Excel's Regression Analysis tool or the Excel LINEST() function, estimate a regression with Archer Daniel's monthly excess return as the dependent (Y) variable and the S&P 500 excess return as the independent (X) variable. To compute monthly excess returns, assume the effective annual risk-free rate is 3%.
Next, compute the beta and alpha by instead using the analytical formula given in the Example in the textbook.
Finally, compare the beta you computed from the two methods to the beta for Archer Daniels listed in the upper left-hand corner of Value Line's Stock Report. Do the results match the Value Line beta? What might explain the differences?

Price and dividend data, Archer Daniels (ADM) and S&P 500

Date	Price: Archer Daniels	dividend amount	S&P500 Adjusted Index Level
1/31/01	14.93	0.05	1366.01
2/1/01	15.05	0	1239.94
3/1/01	13.15	0	1160.33
4/2/01	11.91	0	1249.46
5/1/01	13.5	0.05	1255.82
6/1/01	13.05	0	1224.38
7/2/01	13.39	0	1211.23
8/1/01	13.43	0.05	1133.58
9/4/01	13.43	0	1040.94
10/1/01	12.59	0	1059.78
11/1/01	13.93	0	1139.45
12/3/01	15.39	0.05	1148.08
1/2/02	14.35	0	1130.2
2/1/02	13.94	0	1106.73
3/1/02	13.85	0.05	1147.39
4/1/02	13.93	0	1076.92
5/1/02	13.27	0	1067.14
6/3/02	14.55	0.05	989.82
7/1/02	12.79	0	911.62
8/1/02	11.7	0	916.07
9/3/02	12.19	0.06	815.28
10/1/02	12.51	0	885.76
11/1/02	13.62	0	936.31
12/2/02	13.33	0.06	879.82
1/2/03	12.4	0	855.7
2/3/03	12.05	0	841.15
3/3/03	10.9	0.06	848.18
4/1/03	10.8	0	916.92
5/1/03	11.08	0	963.59
6/2/03	11.97	0.06	974.5
7/1/03	12.87	0	990.31
8/1/03	13.14	0	1008.01
9/2/03	13.87	0.06	995.97
10/1/03	13.11	0	1050.71
11/3/03	14.35	0	1058.2
12/1/03	14.29	0.06	1111.92
1/2/04	15.22	0	1131.13
2/2/04	15.66	0	1144.94
3/1/04	17.2	0.075	1126.21
4/1/04	16.87	0	1107.3
5/3/04	17.56	0	1120.68
6/1/04	16.63	0.075	1140.84
7/1/04	16.78	0	1101.72
8/2/04	15.43	0	1104.24
9/1/04	15.97	0.075	1114.58
10/1/04	16.98	0	1130.2
11/1/04	19.37	0	1173.82
12/1/04	21.2	0.075	1211.92
1/3/05	22.31	0	1181.27
2/1/05	24.2	0	1203.6
3/1/05	24.1	0.085	1180.59
4/1/05	24.58	0	1156.85
5/2/05	17.99	0	1191.5
6/1/05	19.85	0.085	1191.33
7/1/05	21.38	0	1234.18
8/1/05	22.94	0	1220.33
9/1/05	22.51	0.085	1228.81
10/3/05	24.66	0	1207.01
11/1/05	24.37	0	1249.48
12/1/05	23.57	0.085	1248.29
1/3/06	24.66	0	1280.08
2/1/06	31.5	0	1280.66
3/1/06	31.72	0.1	1294.87
4/3/06	33.65	0	1310.61
5/1/06	36.34	0	1270.09
6/1/06	41.57	0.1	1270.2
7/3/06	41.28	0	1276.66
8/1/06	44	0	1303.82
9/1/06	41.17	0.1	1335.85
10/2/06	37.88	0	1377.94
11/1/06	38.5	0	1400.63
12/1/06	35.1	0.1	1418.3
1/3/07	31.96	0	1438.24
2/1/07	32	0	1406.82
3/1/07	34.35	0.115	1420.86
4/2/07	36.7	0	1482.37
5/1/07	38.7	0	1530.62
6/1/07	35.04	0.115	1503.35
7/2/07	33.09	0	1455.27
8/1/07	33.6	0	1473.99
9/4/07	33.7	0.115	1526.75
10/1/07	33.08	0	1549.38
11/1/07	35.78	0	1481.14
12/3/07	36.35	0.115	1468.36
1/2/08	46.43	0	1378.55
2/1/08	43.98	0	1330.63
3/3/08	45.1	0.13	1322.7
4/1/08	41.16	0	1385.59
5/1/08	44.06	0	1400.38
6/2/08	39.7	0.13	1280
7/1/08	33.75	0	1267.38
8/1/08	28.63	0	1282.83
9/2/08	25.46	0.13	1166.36
10/1/08	21.91	0	968.75
11/3/08	20.73	0	896.24
12/1/08	27.38	0.13	903.25
1/2/09	28.83	0	825.88
2/2/09	27.38	0	735.09
3/2/09	26.66	0.14	797.87
4/1/09	27.78	0	872.81
5/1/09	24.62	0	919.14
6/1/09	27.52	0.14	919.32
7/1/09	26.77	0	987.48
8/3/09	30.12	0	1020.62
9/1/09	28.83	0.14	1057.08
10/1/09	29.22	0	1036.19
11/2/09	30.12	0	1095.63
12/1/09	30.81	0.14	1115.1
1/4/10	31.31	0	1073.87
2/1/10	29.97	0	1104.49
3/1/10	29.36	0.15	1169.43
4/1/10	28.9	0	1186.69
5/3/10	27.94	0	1089.41
6/1/10	25.27	0.15	1030.71
7/1/10	25.82	0	1101.6
8/2/10	27.36	0	1049.33
9/1/10	30.81	0.15	1141.2
10/1/10	31.92	0	1183.26
11/1/10	33.32	0	1180.55
12/1/10	28.99	0.15	1257.64
1/3/11	30.08	0	1286.12
2/1/11	32.67	0	1327.22
3/1/11	37.18	0.16	1325.83
4/1/11	36.01	0	1363.61
5/2/11	37.02	0	1345.2
6/1/11	32.41	0.16	1320.64
7/1/11	30.15	0	1292.28
8/1/11	30.38	0	1218.89
9/1/11	28.48	0.16	1131.42
10/3/11	24.81	0	1253.3
11/1/11	28.94	0	1246.96
12/1/11	30.12	0.175	1257.6
12/31/11	28.6	0	1268.3

The formula for alpha is Alpha= End Price+DPS-Start Price/Start Price, where: DPS=Distribution per share. Beta= CR/Variance of Market's Return, where: CR=Covariance of asset's return with market's return.

Reference no: EM133060539

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