Question

K Co. is a publicly listed company involved in the production of highly technical and sophisticated...

K Co. is a publicly listed company involved in the production of highly technical and sophisticated electronic components for complex machinery. It has a number of diverse and popular products, an active research and development department, significant cash reserves and a highly talented management who are very good in getting products to market quickly.

A new industry that K Co. is looking to venture into is biotechnology, which has been expanding rapidly and there are strong indications that this recent growth is set to continue. However, K Co. has limited experience in this industry. Therefore, it believes that the best and quickest way to expand would be through acquiring a company already operating in this industry sector.

Discussions taken place about the possibility of acquiring Tee Co. being acquired by K Co. Price of Tee company in stock market during last one year are as follows.

Price at the end of month

Month

Month end Price

KSE 100 INDEX

Jan

175

32600

Feb

185

33900

March

152

33500

April

190

34000

May

195

33500

June

188

33800

July

190

33700

Aug

195

33200

Sep

190

32900

Oct

185

33100

Nov

190

33900

Dec

88

34100

  1. Calculate average return for both stock and market
  2. Calculate Standard deviation for both
  3. Calculate coefficient of variation for both
  4. Calculate Beta of stock
  5. Suggest what you understand from Beta

Homework Answers

Answer #1
Month Month end Price RETURN KSE 100 INDEX RETURN
Jan 175 32600
Feb 185 5.71% 33900 3.99%
March 152 -17.84% 33500 -1.18%
April 190 25.00% 34000 1.49%
May 195 2.63% 33500 -1.47%
June 188 -3.59% 33800 0.90%
July 190 1.06% 33700 -0.30%
Aug 195 2.63% 33200 -1.48%
Sep 190 -2.56% 32900 -0.90%
Oct 185 -2.63% 33100 0.61%
Nov 190 2.70% 33900 2.42%
Dec 88 -53.68% 34100 0.59%
AVERAGE RETURN -3.69% 0.42% =MEAN
STANDARD DEVIATION 19.38% 1.74% =STDDEV
COEFF . OF VARIATION -5.256221822 4.103471499 =STD DEV / MEAN
VARIANCE 3.76% 0.03% =VAR
COVARIANCE 0.000569039 =COVAR
BETA 1.89 =COVAR / VARIANCE (KSE 100 INDEX)

NOTE -

PLEASE APPRECIATE THE WORK

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