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Calculating Beta for Your Company

Learn how to calculate beta for your company using monthly return data and regression analysis in Excel. Compare the calculated beta with the beta provided by a financial website and explain the riskiness of your stock relative to the S&P500.

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Calculating Beta for Your Company

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  1. FIN3013 Lab #8

  2. Questions? From Assignment #7 UTSA College of Business FIN3013Lab

  3. Assignment #9Calculating Beta for Your Company • Data • Use the monthly return data that you calculated for your stock and for the S&P500 in Lab Assignment #3. • You should have monthly return data for your company and for the S&P500 from January 1, 1999 through December 31, 2005. UTSA College of Business FIN3013Lab

  4. Assignment #9Calculating Beta for Your Company • Need to calculate a regression • There are several methods in excel to calculate a regression • We will use the charting capability • Begin by choosing the “insert” option • Then “chart” • Then “XY (scatter) • Choose the “series” option to tell excel what data to use • S&P500 return column is used for “X value” • Your stock return column is used for “Y value” UTSA College of Business FIN3013Lab

  5. Assignment #9Calculating Beta for Your Company • You now have a scatter graph • To get a regression line: • Click your left mouse key to make several of the data points turn yellow. • With your mouse pointing to one of these yellow data points, right click your mouse. • Choose “add trendline” • We will use the default (linear) trend line • Choose “options” so that you can click “display equation on chart” UTSA College of Business FIN3013Lab

  6. Assignment #9Calculating Beta for Your Company • You may find that your regression equation is difficult to read if it is placed over the data points. • You can move this equation to the side of the graph (it is in a text box) so that it will be easier to read. • Make sure that you have properly labeled your graph and that your graph has a title. UTSA College of Business FIN3013Lab

  7. Assignment #9Writing your memo • Explain what “beta” is • Use the concept of beta to explain how risky your stock is relative to the S&P500 • Compare the beta that you calculate with the beta that is provided on the http://finance.yahoo.com website for your stock • If beta is not available for your stock at this website, use a search engine to find an alternative source • Specifically refer to your graph in your writing • Use your professional writing skills when writing your memo. UTSA College of Business FIN3013Lab

  8. Remember • Assignment #8 is due at Lab #9 • Review UTSA College of Business FIN3013Lab

  9. Quiz #4 UTSA College of Business FIN3013Lab

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