How to Compute the Beta of the Company's Stock
Resolved Question
I need to calculate beta of the company's stock? eg: returns for co. are -5%, 5%, 8%, 15% and 10% over 5 years. the returns for stock exchange are -12%, 1%, 6% 10% and 5% for the same 5 years.
How to compute the beta of the company's stock? * 5 years ago * Report Abuse anilwyd Best Answer - Chosen by Asker
Bete is measure of Risk.
Year 1 Beta = -5/12 = 0.42
Year 2 Beta = 5/1 = 5
Year 3 Beta = 8/6 = 1.33
Year 4 Beta =10/10 = 1
Year 5 Beta = 10/5 = 2
Overall Beta for five Year = -5+5+8+15+10/(-12+1+6+10+5)
= 3.3
It means , when Index moves @ 1% the Company Share will move by 3.3%
The more the Bete , the more the Risk. also Return.
So be carefull in investing in Companies having high Beta.
The first thing you should know about stocks before adding them to your portfolio is that they carry a certain amount of risk. This is because the returns on stock are not guaranteed; not by the government, not by the company issuing the stock, and certainly not by your broker. That means that there is a chance that your actual return will be different than what you had expected. For instance, you might purchase stock under the expectation that its price will rise steadily over time and that it will pay you annual dividends. However, if the company experiences financial problems, you may not receive the price appreciation or the dividends that you expected. In fact, the company could even go out of business, in which case you could lose your entire investment. On the flip side, however, there is always the chance that the stock will outperform your expectations. It could double in price and start paying out hefty dividends, in which case you would enjoy a gain greater than what you had expected. Because there is uncertainty regarding which of the various possible outcomes will occur, you bear a certain amount of risk when purchasing the equity.
How do the risks associated with stocks affect your overall portfolio? That
I need to calculate beta of the company's stock? eg: returns for co. are -5%, 5%, 8%, 15% and 10% over 5 years. the returns for stock exchange are -12%, 1%, 6% 10% and 5% for the same 5 years.
How to compute the beta of the company's stock? * 5 years ago * Report Abuse anilwyd Best Answer - Chosen by Asker
Bete is measure of Risk.
Year 1 Beta = -5/12 = 0.42
Year 2 Beta = 5/1 = 5
Year 3 Beta = 8/6 = 1.33
Year 4 Beta =10/10 = 1
Year 5 Beta = 10/5 = 2
Overall Beta for five Year = -5+5+8+15+10/(-12+1+6+10+5)
= 3.3
It means , when Index moves @ 1% the Company Share will move by 3.3%
The more the Bete , the more the Risk. also Return.
So be carefull in investing in Companies having high Beta.
The first thing you should know about stocks before adding them to your portfolio is that they carry a certain amount of risk. This is because the returns on stock are not guaranteed; not by the government, not by the company issuing the stock, and certainly not by your broker. That means that there is a chance that your actual return will be different than what you had expected. For instance, you might purchase stock under the expectation that its price will rise steadily over time and that it will pay you annual dividends. However, if the company experiences financial problems, you may not receive the price appreciation or the dividends that you expected. In fact, the company could even go out of business, in which case you could lose your entire investment. On the flip side, however, there is always the chance that the stock will outperform your expectations. It could double in price and start paying out hefty dividends, in which case you would enjoy a gain greater than what you had expected. Because there is uncertainty regarding which of the various possible outcomes will occur, you bear a certain amount of risk when purchasing the equity.
How do the risks associated with stocks affect your overall portfolio? That