Given the following returns on Stock Q and "the market" during the last three years,what is the difference in the calculated beta coefficient of Stock Q when Year 1 and Year 2 data are used as compared to Year 2 and Year 3 data? (Hint: Think rise over run. )

A) 8.44
B) 8.02
C) 7.18
D) 7.34
E) 6.33

Question

Given the following returns on Stock Q and "the market" during the last three years,what is the difference in the calculated beta coefficient of Stock Q when Year 1 and Year 2 data are used as compared to Year 2 and Year 3 data? (Hint: Think rise over run. )

A) 8.44 
B) 8.02 
C) 7.18 
D) 7.34 
E) 6.33

Quizplus · Accepted Answer

Using Year 1 and Year 2 data:

Slope of the regression line = (10% - 8%) / (10% - 4%) = 2 / 6 = 0.33 
Beta coefficient of Stock Q = 0.33 / 1.5 = 0.22

Using Year 2 and Year 3 data:

Slope of the regression line = (8% - 6%) / (4% - (-2%)) = 2 / 6 = 0.33 
Beta coefficient of Stock Q = 0.33 / 1.5 = 0.22

There is no difference in the calculated beta coefficient of Stock Q when Year 1 and Year 2 data are used as compared to Year 2 and Year 3 data. Therefore, the answer is A) 8.44.

Given the Following Returns on Stock Q and "The Market