IAI May 2014 Que 15

Hello Guys
I feel there is some error in calculating Var (m) and Market return rate in this que. Please check and correct me if I am wrong.
Thanks in advance
Regards
Rajat

 

https://www.acted.co.uk/forums/index.php?threads/iai-may-2014-q-15.11571/
This thread may help.

Also i did it in an another way, so sharing that.

 

Thanks Aditya but what about Var (m)? Shouldn't it be 0.260 % rather than 0.00260%. Please verify the figures of last column of the solution. Also why have annualised Market return rate by multipling 0.833 with 12? Sensex levels are for the past one year

 

0.833 is the average market return in the past year while 10% is the total return from market in the year.
So while calculating cost of equity, we use the total Market return, ie. 10%.
And to calculate beta by this method, we need average of the market return (10%/12)

We can also calculate beta by the regression method.

For the variance calculation, I'm not getting the same calculations as them.
But I'm getting the same beta if by using the regression method

 

Ok thanks Aditya

 

Can you show your working of regression method in detail?

 

beta= regression coefficient of y on x ( where x is the market return and y is the company's return)
Therefore, beta= byx = r * (sigma y/ sigma x). [ correlation coefficient * proportion of standard deviations)
calculated from calculator gives 1.98 which is approximated to 2

 

Thanks Aditya

 

Pleasure