Month Monthly Returns (%) Month Monthly Returns (%) Month Monthly Returns (%) En

Question

Month

Monthly Returns (%)

Month

Monthly Returns (%)

Month

Monthly Returns (%)

Ended

Yahoo

Google

S&P500

Ended

Yahoo

Google

S&P500

Ended

Yahoo

Google

S&P500

Dec-07

-13.241

-0.219

-0.692

Dec-06

-5.442

-5.018

1.403

Dec-05

-2.610

2.457

0.036

Nov-07

-13.794

-1.980

-4.182

Nov-06

2.544

1.767

1.899

Nov-05

8.818

8.806

3.778

Oct-07

15.861

24.632

1.590

Oct-06

4.193

18.534

3.257

Oct-05

9.249

17.595

-1.668

Sep-07

18.093

10.096

3.736

Sep-06

-12.314

6.174

2.575

Sep-05

1.561

10.650

0.810

Aug-07

-2.237

1.029

1.497

Aug-06

6.227

-2.087

2.376

Aug-05

-0.060

-0.612

-0.912

Jul-07

-14.302

-2.430

-3.097

Jul-06

-17.758

-7.805

0.616

Jul-05

-3.781

-2.172

3.717

Jun-07

-5.470

4.979

-1.660

Jun-06

4.463

12.778

0.133

Jun-05

-6.855

6.088

0.143

May-07

2.354

5.628

3.486

May-06

-3.630

-11.035

-2.875

May-05

7.826

26.032

3.179

Apr-07

-10.387

2.885

4.428

Apr-06

1.612

7.164

1.342

Apr-05

1.770

21.877

-1.896

Mar-07

1.393

1.938

1.116

Mar-06

0.624

7.551

1.244

Mar-05

5.051

-3.979

-1.769

Feb-07

9.007

-10.379

-1.950

Feb-06

-6.735

-16.188

0.271

Feb-05

-8.350

-3.900

2.103

Jan-07

10.846

8.908

1.511

Jan-06

-12.264

4.291

2.648

Jan-05

-6.555

1.468

-2.437

Question: (Use table above to solve)

Segregate the return data in the above table into bull and bear markets, using the S&P 500 index as the proxy for the market.

A.) What was the average return for the two companies during these two types of markets? What was the return for the S&P 500 index during those times?

B.) Using the average return measures in a), compute the beta for Yahoo and Google.

C.) According to these beta estimates, which company is riskier?

Month

Monthly Returns (%)

Month

Monthly Returns (%)

Month

Monthly Returns (%)

Ended

Yahoo

Google

S&P500

Ended

Yahoo

Google

S&P500

Ended

Yahoo

Google

S&P500

Dec-07

-13.241

-0.219

-0.692

Dec-06

-5.442

-5.018

1.403

Dec-05

-2.610

2.457

0.036

Nov-07

-13.794

-1.980

-4.182

Nov-06

2.544

1.767

1.899

Nov-05

8.818

8.806

3.778

Oct-07

15.861

24.632

1.590

Oct-06

4.193

18.534

3.257

Oct-05

9.249

17.595

-1.668

Sep-07

18.093

10.096

3.736

Sep-06

-12.314

6.174

2.575

Sep-05

1.561

10.650

0.810

Aug-07

-2.237

1.029

1.497

Aug-06

6.227

-2.087

2.376

Aug-05

-0.060

-0.612

-0.912

Jul-07

-14.302

-2.430

-3.097

Jul-06

-17.758

-7.805

0.616

Jul-05

-3.781

-2.172

3.717

Jun-07

-5.470

4.979

-1.660

Jun-06

4.463

12.778

0.133

Jun-05

-6.855

6.088

0.143

May-07

2.354

5.628

3.486

May-06

-3.630

-11.035

-2.875

May-05

7.826

26.032

3.179

Apr-07

-10.387

2.885

4.428

Apr-06

1.612

7.164

1.342

Apr-05

1.770

21.877

-1.896

Mar-07

1.393

1.938

1.116

Mar-06

0.624

7.551

1.244

Mar-05

5.051

-3.979

-1.769

Feb-07

9.007

-10.379

-1.950

Feb-06

-6.735

-16.188

0.271

Feb-05

-8.350

-3.900

2.103

Jan-07

10.846

8.908

1.511

Jan-06

-12.264

4.291

2.648

Jan-05

-6.555

1.468

-2.437

Explanation / Answer

According to Beta estimates Google is more risky than Yahoo because the beta is higher for google( 1.255) with Yahoo(0.987)

A B C Month Monthly Returns (%) Using excel Average return =AVERAGE(A1:A36) Using excel Average return =AVERAGE(B1:B36) Using excel Average return =AVERAGE(C1:C36) Beta of YAHOO=COVARIANCE.P(A1:A36,C1:C36)/VAR.P(C1:C36) Beta of GOOGLE =COVARIANCE.P(B1:B36,C1:C36)/VAR.P(C1:C36) Ended Yahoo Google S&P500 YAHOO Google S&P500 YAHOO GOOGLE 1 7-Dec -13.241 -0.219 -0.69 -0.953 4.042 0.715 0.987 1.255 2 7-Nov -13.794 -1.98 -4.18 3 7-Oct 15.861 24.632 1.59 4 7-Sep 18.093 10.096 3.736 5 7-Aug -2.237 1.029 1.497 6 7-Jul -14.302 -2.43 -3.1 7 7-Jun -5.47 4.979 -1.66 8 7-May 2.354 5.628 3.486 9 7-Apr -10.387 2.885 4.428 10 7-Mar 1.393 1.938 1.116 11 7-Feb 9.007 -10.379 -1.95 12 7-Jan 10.846 8.908 1.511 13 6-Dec -5.442 -5.018 1.403 14 6-Nov 2.544 1.767 1.899 15 6-Oct 4.193 18.534 3.257 16 6-Sep -12.314 6.174 2.575 17 6-Aug 6.227 -2.087 2.376 18 6-Jul -17.758 -7.805 0.616 19 6-Jun 4.463 12.778 0.133 20 6-May -3.63 -11.035 -2.88 21 6-Apr 1.612 7.164 1.342 22 6-Mar 0.624 7.551 1.244 23 6-Feb -6.735 -16.188 0.271 24 6-Jan -12.264 4.291 2.648 25 5-Dec -2.61 2.457 0.036 26 5-Nov 8.818 8.806 3.778 27 5-Oct 9.249 17.595 -1.67 28 5-Sep 1.561 10.65 0.81 29 5-Aug -0.06 -0.612 -0.91 30 5-Jul -3.781 -2.172 3.717 31 5-Jun -6.855 6.088 0.143 32 5-May 7.826 26.032 3.179 33 5-Apr 1.77 21.877 -1.9 34 5-Mar 5.051 -3.979 -1.77 35 5-Feb -8.35 -3.9 2.103 36 5-Jan -6.555 1.468 -2.44

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