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1 Found helpful • 5 Pages • Essays / Projects • Year Uploaded: 2022
To calculate Beta in excel: 1. Find daily rate of return for the stock WPL, and for AXJO. 2. Because Beta uncovers any risk premium that generates higher return as compared to taking on market risk, subtract the risk-free rate of return for both the daily rate of return for WPL and AXJO in two different columns (i.e., WPL Excess Daily Return and AXJO Excess Daily Return). 3. Using the Add-In Package in Excel ‘’Analysis Toolpak’’, run a regression model in which the Y axis contains all the WPL risk-free adjusted data, and the X axis contains all the AXJO risk-free adjusted data. This allows us to estimate a regression model for the Security Market Line, in line with the assumption that r(WPL return– risk free rate) = β(r(AXJO return – risk free rate) in line with the linear equation y = βx + α. 4. In the regression model, X Co-efficient represents Beta. Check that the value for Beta is statistically significant by checking if the P-value satisfies the condition p<0.10. If so, the X-Coefficient holds as representation of Beta. 5. Cross check with the excel functions = covar.p(WPL daily return rates, AXJO daily return rates) and =var.p(AXJO daily return rate). Divide the covariance between the stock and the market index by the variance of the market return to obtain value for β.
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