Question

Deep Value, Inc.’s annual stock returns for the last ten years are: –5%, 15%, 11%, 18%, –8%, 9%, 16%, –3%, 3%, and 35%. The Market Index’s annual returns for the same ten years are: 10%, 22%, 9%, 13%, –7%, 8%, 15%, –13%, –12%, and 18%. What is Deep Value’s beta coefficient? Enter your answer rounded to two decimal places. For example, if your answer is 12.345 then enter as 12.35 in the answer box.

Answer 1

Year	Stock Return Ri	Market Return Mi	(Ri-Rm)	(Mi-Mm)	(Mi-Mm)^2	(Ri-Rm)*(Mi-Mm)
1	-5%	10%	-14.10%	3.70%	0.001369	-0.0052170
2	15%	22%	5.90%	15.70%	0.024649	0.0092630
3	11%	9%	1.90%	2.70%	0.000729	0.0005130
4	18%	13%	8.90%	6.70%	0.004489	0.0059630
5	-8%	-7%	-17.10%	-13.30%	0.017689	0.0227430
6	9%	8%	-0.10%	1.70%	0.000289	-0.0000170
7	16%	15%	6.90%	8.70%	0.007569	0.0060030
8	-3%	-13%	-12.10%	-19.30%	0.037249	0.0233530
9	3%	-12%	-6.10%	-18.30%	0.033489	0.0111630
10	35%	18%	25.90%	11.70%	0.013689	0.0303030
Mean	Rm=9.10%	Mm=6.30%
n=10
Variance of Market =∑(Mi-Mm)^2/(n-1)			0.01569
Covariance=∑(Ri-Rm)*(Mi-Mm)/(n-1)			0.0115633
Beta=Covariance/ variance of market			0.74