Analyzing a Stock. The beta, B of a stock represents the relative risk of a stock compared with a market basket of stocks, such as Standard and poor's 500 Index of stocks. Beta is computed by finding the slope of the line of best fit between the rate of return of the stock and rate of return of the S&P 500. The rates of return are computed on a weekly basis.

Question

Analyzing a Stock.  The beta, B of a stock represents the relative risk of a stock compared with a market basket of stocks, such as Standard and poor's 500 Index of stocks. Beta is computed by finding the slope of the line of best fit between the rate of return of the stock and rate of return of the S&P 500. The rates of return are computed on a weekly basis.

a. Find the weekly closing price of your favorite stock and the S$P 500 for 20 weeks. One good source is on the Internet at

b. Compute the rate of return by computing the weekly percentage change in the closing price of your stock and the weekly percentage change in the S&P 500 using the following formula:
weekly % change= P2- P1/P1
where P1 is last week's price and P2 is this week's price.

c. Using a graphing utility, find the line of best fit, treating the weekly rate of return of the S&P 500 as the independent variable and the weekly rate of return of your stock as the dependent variable.

d. What is the beta of your stock?

e. Compare your result with that of the Value Linr Investment Survey found in your Library. What might account for any differences?