Question

# The table below shows daily returns on XYZ and Market. Return of XYZ Return of Market...

The table below shows daily returns on XYZ and Market.

 Return of XYZ Return of Market Monday 5% -4% Tuesday -3% 3% Wednesday 6% 10% Thursday -10% -5% Friday 8% 7%

1. Find Expected returns of XYZ and Market.

1. What is the covariance of XYZ and the Market?
1. Find the Beta of XYZ.

1. Expected returns are basically the average of the given returns:

XYZ = 5% - 3% + 6% - 10% + 8% / 5

= 6%/5 = 1.2%

Market returns = -4% + 3% + 10% - 5% + 7% / 5

= 11%/5 = 2.2%

2. Covariance = Sum of ( (Xi - Xmean) ( Yj - Ymean)) / n-1

= ( (5-1.2)*(-4-2.2) + (-3-1.2)*(3-2.2) + (6-1.2)*(10-2.2) + (-10-1.2)*(-5-2.2) + (8-1.2)*(7-2.2)) / 5-1

= ( 3.8*-6.2 + -4.2*0.8 + 4.8*7.8 + -11.2*-7.2 + 6.8*4.8)/4

= (-23.56 - 3.36 + 37.44 + 80.64 + 32.64)/4

= 123.8/4

= 30.95

3. Beta of XYZ = Covariance/ variance of XYZ

Varience = Sum of (xi - xmean)^2 / n-1

= (3.8^2 + -4.2^2 + 4.8^2 + -11.2^2 + 6.8^2) / 5-1

= (14.44 + 17.64 + 23.04 + 125.44 + 46.24) /4

= 226.8/4

= 56.7

Beta = 30.95/56.7

= 0.546

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