Estimation of beta, Compute monthly holding period return

Estimation of beta

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Reference no: EM133646517

Part Two: Estimation of Beta

Answer the following questions for two stocks, Dynex Capital Inc. (ticker DX) and International Paper Company (ticker IP). The risk free rate for this exercise is provided in a the attached photo file name "risk_free_rate.xls". Note that the risk free rate is quoted as annual percentage rate.

1. (4') Download monthly Adj. close prices from 01/01/2017 through 12/01/2022 for each stock.

2. (8') Compute monthly holding period return using Adj. close prices for each stock.

Suppose we consider the US S and P 500 ETF (ticker: SPY) as the market portfolio.

3. (4') Download monthly Adj. close prices for SPY from 01/01/2017 through 12/01/2022.

4. (4') Compute monthly holding period return using Adj. close prices for SPY.

5. (12') Estimate betas of DX and IP based on the index model regressions, and show your regression output.

6. Calculate mean return (4'), Standard deviation (4'), and beta of the two portfolios (6'): Portfolio A (90% in SPY and 10% in DX), Portfolio B (90% in SPY and 10% in IP). Include the formulas you used for your calculation (4').

Reference no: EM133646517

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