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Risk Calculation
Risk Calculation
Rm =
Rm - Rm
-0.10
0.00
-0.10
0.00
0.20
-0.10
0.20
-0.20
0.10
0.00
(Rm - Rm) 2
0.01
0.00
0.01
0.00
0.04
0.01
0.04
0.04
0.01
0.16
R=
or a particular period.
Ri - Ri
-0.20
0.10
-0.10
0.00
0.10
-0.20
0.20
0.00
0.10
0.00
(Ri - Ri)2
0.04
0.01
0.01
0.00
0.01
0.04
0.04
0.00
0.01
0.16
Problem
The average market prices and dividend per share of Asian CERC Ltd. For the past 6 years are given below:
S.No.
Year
1
2
3
4
5
6
2002
2003
2004
2005
2006
2007
S.No.
Year
1
2
3
4
5
6
2002
2003
2004
2005
2006
2007
Average
Dividen
Market
per share
Price
(Rs.)
(Rs.)
38
1.8
45
2
53
2.5
50
2
61
2.6
68
3
Average
Market
Price
(Rs.)
38
45
53
50
61
68
Catial
Gain
(Rs.)
7
8
-3
11
7
Dividen
Catial
Dvividen Rate of
per share
Gain (%)
Yield (%) Return
(Rs.)
18.42%
17.78%
-5.66%
22.00%
11.48%
85.85% /5
17.17%
1.8
2
2.5
2
2.6
3
4.74%
4.44%
4.72%
4.00%
4.26%
4.41%
22.87%
22.49%
-1.66%
26.26%
15.89%
85.85%
Problem:
Given below are the returns on IBM and BSE Sensex for a five year period.
Calculate Beta, Alpha Residual Variance and Correlation:
Return
on BSE
Year
Return on IBM (Y)
Sensex
(X)
1
0.2
0.1
2
0.3
0.2
3
0.5
0.3
4
0.4
0.4
0.6
0.5
5
Solution:
Year
Return on BSE
Sensex (X)
1
2
3
4
5
0.10
0.20
0.30
0.40
0.50
1.50
Return
on IBM
(Y)
0.20
0.30
0.50
0.40
0.60
2.00
X =
Y =
Calculation of Beta
B slpe of the Regression Line is given by
n XY - (X) (Y)
B =
nX2 - (X)2
=
(5 x .69) - (1.5 x 2)
(5 x .55) - (1.50)2
=
3.45 - 3
2.75-2.25
0.9
Calculation of Alpha
0.3
0.4
XY
X2
Y2
0.02
0.06
0.15
0.16
0.30
0.69
0.01
0.04
0.09
0.16
0.25
0.55
0.04
0.09
0.25
0.16
0.36
0.90
Y2 - Alpha Y - B XY
n
r =
x2*Y2
=
0.69
0.55 * 0.90
0.982
Coefficient of Determination
=
=
=
r2
(0.982)2
0.964
Variance of IBM
Y=
Y
n
2
5
dy
-0.20
-0.10
0.10
0.00
0.20
0.00
dy2
0.04
0.01
0.01
0.00
0.04
0.10
Variance =
SD
0.1/5
=
=
0.4
0.02
0.141
=
=
0.01928
0.00072
Total Variance
Coefficient of Correlation
0.02
Covariance
SD of X * SD of Y
Problem
Date
5-Oct
6-Oct
7-Oct
8-Oct
9-Oct
12-Oct
13-Oct
14-Oct
15-Oct
16-Oct
S. No.
Date
Index Return
(Rm)
1
2
3
4
5
6
7
8
9
5-Oct
6-Oct
7-Oct
8-Oct
9-Oct
12-Oct
13-Oct
14-Oct
15-Oct
16-Oct
904.95
845.75
874.25
847.95
849.10
835.80
816.75
843.55
835.55
839.50
8493.15
-6.54%
3.37%
-3.01%
0.14%
-1.57%
-2.28%
3.28%
-0.95%
0.47%
-7.08%
597.80
570.80
582.95
559.85
554.60
545.10
519.15
560.70
560.95
597.40
5649.30
-4.52%
2.13%
-3.96%
-0.94%
-1.71%
-4.76%
8.00%
0.04%
6.50%
0.78%
Rm =
-0.787%
Ri =
0.087%
Solution
Bajaj Auto (Y)
Bajaj Auto
Return (Ri)
(Ri)2
XY
1502.75
1416.44
1457.25
1407.73
1403.69
1380.87
1335.83
1404.36
1396.49
1436.97
14142.39
SUMMARY OUTPUT
Regression Statistics
Multiple R
0.919636996
R Square
0.845732205
Adjusted R Square
0.828591339
Standard Error 0.062299983
Observations
11
ANOVA
df
Regression
Residual
Total
Intercept
X Variable 1
SS
MS
F
Significance F
1 0.191503 0.191503 49.34011 6.16E-05
9 0.034932 0.003881
10 0.226435
Upper 95.0%
0.014871065
2.922897152
Problem
Month - Year
DLF (Y)
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
17558.71
16944.63
17700.9
17868.29
17971.12
20069.12
20032.34
19521.25
20509.09
18327.76
17823.4
19445.22
311.25
276.35
288.2
301.3
301.75
377.3
350.1
307.25
291.95
223.9
212.05
267.2
Index Return
(Rm)
Month - Year
1
2
3
4
5
6
7
8
9
10
11
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
17558.71
16944.63
17700.9
17868.29
17971.12
20069.12
20032.34
19521.25
20509.09
18327.76
17823.4
19445.22
Beta =
DLF (Y)
311.25
276.35
288.2
301.3
301.75
377.3
350.1
307.25
291.95
223.9
212.05
267.2
186503.21
-3.50%
4.46%
0.95%
0.58%
11.67%
-0.18%
-2.55%
5.06%
-10.64%
-2.75%
9.10%
12.20%
3029.35
Rm =
1.109%
Ri =
n Rm 2 -- (Rm)2
=
=
Solution in Indirect Method:
The Beta Value can be obtained by using the simple leaset square technique.
Ri =
i + Bi + ei
S. No.
1
2
3
4
5
6
7
8
9
10
11
Rm =
Rm - Rm
-4.61%
3.35%
-0.16%
-0.53%
10.57%
-1.29%
-3.66%
3.95%
-11.74%
-3.86%
7.99%
0.00%
(Rm - Rm) 2
0.21%
0.11%
0.00%
0.00%
1.12%
0.02%
0.13%
0.16%
1.38%
0.15%
0.64%
3.92%
R=
-0.383%
1.11%
Beta =
=
=
8.66 / 3.92
2.21
Calculation of Alpha:
=
Ri - (-0.383)
Ri + 0.383
Ri
Ri
=
=
=
=
Ri
-2.833 + 2.21 Rm
Ri - Ri
Hence,
Alpha
Beta
=
=
-2.833
2.21
GM - Rm
-0.034972956
0.044631839
0.009456581
0.005754888
0.116742863
-0.001832666
-0.025513245
0.050603317
-0.10635918
-0.027518911
0.090993862
GM - Ri
-0.112128514
0.042880405
0.045454545
0.001493528
0.250372825
-0.072091174
-0.122393602
-0.049796583
-0.233087858
-0.052925413
0.26008017
0.383
Bajaj Auto
Return (Ri)
(Rm)2
Rm * Ri
-11.21%
4.29%
4.55%
0.15%
25.04%
-7.21%
-12.24%
-4.98%
-23.31%
-5.29%
26.01%
-4.21%
12.23%
19.92%
0.89%
0.33%
136.29%
0.03%
6.51%
25.61%
113.12%
7.57%
82.80%
405.31%
39.21%
19.14%
4.30%
0.09%
292.29%
1.32%
31.23%
-25.20%
247.91%
14.56%
236.66%
861.51%
-0.383%
(11 * 861.51) - (12.2 * -4.21)
(11 * 405.31) - (12.2)2
9527.972
4309.57
2.21
-0.034972956
0.044631839
0.009456581
0.005754888
0.116742863
-0.001832666
-0.025513245
0.050603317
-0.10635918
-0.027518911
0.090993862
Ri - Ri
-0.11
0.05
0.05
0.01
0.25
-0.07
-0.12
-0.05
-0.23
-0.05
0.26
0.00
Slope
m - 2.45 - 0.383
33 + 2.21 Rm
(Ri - Ri)2
1.17%
0.22%
0.24%
0.00%
6.46%
0.47%
1.41%
0.21%
5.26%
0.24%
6.96%
22.64%
0.383
-3.50
4.46
0.95
0.58
11.67
-0.18
-2.55
5.06
-10.64
-2.75
9.10
SUMMARY OUTPUT
Regression Statistics
Multiple R
0.587161905
R Square
0.344759103
Adjusted R Square
0.271954559
Standard Error
9.370760328
Observations
11
ANOVA
df
Regression
Residual
Total
Intercept
X Variable 1
SS
MS
F
Significance F
1 415.8215 415.8215 4.735406 0.057539
9 790.3003 87.81115
10 1206.122
Lower 95.0%
Upper 95.0%
2.199891 16.62488
-0.013 0.670316
Following data give the market return and the Sun Company Scrip's Return for a particular period.
Index Return (Rm)
Scrip Return (Ri)
4.00
3.00
14.30
18.20
19.00
9.10
-14.70
-6.00
-26.50
15.30
37.20
33.10
23.80
6.10
-7.20
3.20
6.60
14.80
20.50
24.10
30.60
18.00
107.60
138.90
a) What is the Beta Value of the Sun Company Scrip?
b) If the market return is 25, what would be the scrip return?
Solution:
The Beta Value can be obtained by using the simple leaset square technique.
Ri =
i + Bi + ei
S. No.
1
2
3
4
5
6
7
8
9
10
11
Rm =
Rm - Rm
-5.78
4.52
9.22
-24.48
-36.28
27.42
14.02
-16.98
-3.18
10.72
20.82
0.00
9.78
Beta =
(Rm - Rm) 2
33.43
20.41
84.97
599.36
1316.37
751.76
196.51
288.38
10.12
114.88
433.40
3849.60
R=
(Ri-Ri)(Rm-Rm)
1265.21
(Rm-Rm)2
3849.60
Calculation of Alpha:
Ri - Ri
Ri - (12.63)
Ri - 12.63
Ri
Ri
215
315
25
340
125
Ri
Hence,
Beta =
=
Alpha
Beta
0.32865925
OR
0.32865925
Alpha =
=
or a particular period.
Beta =
115.0186777
349.9633058
0
Ri - Ri
-9.63
5.57
-3.53
-18.63
2.67
20.47
-6.53
-9.43
2.17
11.47
5.37
0.00
12.63
0.32865925
(Ri - Ri)2
92.68
31.06
12.44
346.98
7.14
419.13
42.61
88.87
4.72
131.62
28.87
1206.12
=
=
=
=
=
=
=
SUMMARY OUTPUT
Regression Statistics
Multiple R 0.637124
R Square
0.405927
Adjusted R Square
0.331668
Standard Error5.48899
Observations
10
ANOVA
df
Regression
Residual
Total
SS
MS
F
Significance F
1 164.6963 164.6963 5.466369 0.047562
8 241.0321 30.12901
9 405.7284
Coefficients
Standard Error t Stat
P-value Lower 95% Upper 95%Lower 95.0%
Upper 95.0%
Intercept 1.201222 2.074646 0.579001 0.578522 -3.58292 5.985364 -3.58292 5.985364
X Variable 1 0.40438 0.172958 2.338027 0.047562 0.005539 0.803222 0.005539 0.803222
Upper 95.0%
Following data give the market return and the Sun Company Scrip's Return for a particular period.
Index Return (Rm)
9.88
2.28
10.31
-3.91
9.21
7.82
-10.00
-0.71
12.20
28.62
4.54
3.13
9.09
-8.86
11.86
6.95
-5.80
2.45
10.66
4.56
Beta =
=
0.404380181
OR
=
=
Alpha =
=