Question

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

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