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You Have Been Given the Following Historical Data on XYZ

Question 47

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You have been given the following historical data on XYZ Corporation:
 year XYZ return  market return 198620%30%198715%10%198825%10%198920%10%199040%20%\begin{array} { c c c } \text { year } & X Y Z \text { return } & \text { market return } \\\hline1986 & 20 \% & 30 \% \\1987 & - 15 \% & - 10 \% \\1988 & 25 \% & 10 \% \\1989 & - 20 \% & - 10 \% \\1990 & 40 \% & 20 \%\end{array}
a. Estimate the beta for XYZ.
b. The price of XYZ stock was $50 a year ago, and today it is $55. The dividends paid by XYZ over the last twelve months amount to $3. The T-bill rate a year ago was 6%, and the NYSE index has risen 10% over the past year. Assume that the average dividend yield on all stocks is 3% and evaluate the performance of XYZ stock over the past year.
c. If the T-bill rate today is 5.5%, what would you project the price of XYZ stock to be a year from today? (Assume that XYZ will continue to pay an annual dividend of $1.)

Correct Answer:

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a.
Covariance = 0.032
Variance (?2m)= 0.02...

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