Chapter 14.2, Problem 12E

Stock Beta. In June of 2016, Yahoo Finance reported the beta value for Coca-Cola was .82 (Yahoo Finance website). Betas for individual stocks are determined by simple linear regression. The dependent variable is the total return for the stock, and the independent variable is the total return for the stock market, such as the return of the S&P 500. The slope of this regression equation is referred to as the stock’s beta. Many financial analysts prefer to measure the risk of a stock by computing the stock’s beta value.

The data contained in the DATAfile named CocaCola show the monthly percentage returns for the S&P 500 and the Coca-Cola Company for August 2015 to May 2016.

1. a. Develop a scatter diagram with the S&P % Return as the independent variable.
2. b. What does the scatter diagram developed in part (a) indicate about the relationship between the returns of the S&P 500 and those of the Coca-Cola Company?
3. c. Develop the least squares estimated regression equation.
4. d. Provide an interpretation for the slope of the estimated equation (that is, the beta).
5. e. Is your beta estimate close to .82? If not, why might your estimate be different?