You are given the following set of data: Construct a scatter diagram showing the

Question

You are given the following set of data:

Construct a scatter diagram showing the relationship between returns on Stock Y and the market.

Select the correct graph.

A) The correct graph is -________?

B) Use a spreadsheet or a calculator with a linear regression function to estimate beta. Round your answer to two decimal places.

Beta = _________?

C) Give a verbal interpretation of what the regression line and the beta coefficient show about Stock Y's volatility and relative risk as compared with those of other stocks. Round your answers to the nearest whole.
Stock Y is about __________ percent as volatile as the market; thus, its relative risk is about ___________ percent of that of an average firm.

Historical Rates of Return Year NYSE Stock Y 1 4.0 % 2.0 % 2 14.3 17.9 3 19.0 9.3 4 - 14.7 - 6.0 5 - 26.5 - 14.0 6 37.2 34.3 7 23.8 6.8 8 - 7.2 3.8 9 6.6 14.5 10 20.5 23.6 11 30.6 17.0 Mean = 9.8 % 9.9 % = 19.6 % 13.6 %

Explanation / Answer

a) the last one! (D)

B) intercept = 3.98 and slope (beta) = 0.61..

c) Stock Y is about ____87.7______ percent as volatile as the market; thus, its relative risk is about ____76.91_______ percent of that of an average firm.

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