Will the two firms have the same beta

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Question: You have just run a regression of monthly returns of American Airlines (AMR) against the S&P 500 over the last five years. You have misplaced some of the output and are trying to derive it from what you have.

a. You know the R squared of the regression is 0.36, and that your stock has a variance of 67%. The market variance is 12%. What is the beta of AMR?

b. You also remember that AMR was not a very good investment during the period of the regression and that it did worse than expected (after adjusting for risk) by 0.39 % a month for the five years of the regression. During this period, the average riskfree rate was 4.84%. What was the intercept on the regression?

c. You are comparing AMR Inc. to another firm which also has an R squared of 0.48. Will the two firms have the same beta? If not, why not?

Reference no: EM131683061

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