# Question: In Section 3 2 we introduced one measure of risk used

In Section 3.2, we introduced one measure of risk used by ﬁnancial analysts, the standard deviation of rate of return. In this problem we will learn about a second measure of risk of a stock, the beta of a stock. The following data represent the annual rate of return of General Electric (GE) stock and the annual rate of return of the Standard & Poor’s 500 (S&P 500) Index for the past 15 years.

(a) Draw a scatter diagram of the data treating the rate of return of the S&P 500 as the explanatory variable.

(b) Determine the correlation coefﬁcient between rate of return of the S&P 500 and GE stock.

(c) Based on the scatter diagram and correlation coefﬁcient, is there a linear relation between rate of return of the S&P 500 and GE?

(d) Find the least-squares regression line treating the rate of return of the S&P 500 as the explanatory variable.

(e) Predict the rate of return of GE stock if the rate of return of the S&P 500 is 0.10 (10%).

(f ) If the actual rate of return for GE was 13.2% when the rate of return of the S&P 500 was 10%, was GE’s performance above or below average among all years the S&P 500 returns were 10%?

(g) Interpret the slope.

(h) Interpret the intercept, if appropriate.

(i) What proportion of the variability in GE’s rate of return is explained by the variability in the rate of return of the S&P 500?

(a) Draw a scatter diagram of the data treating the rate of return of the S&P 500 as the explanatory variable.

(b) Determine the correlation coefﬁcient between rate of return of the S&P 500 and GE stock.

(c) Based on the scatter diagram and correlation coefﬁcient, is there a linear relation between rate of return of the S&P 500 and GE?

(d) Find the least-squares regression line treating the rate of return of the S&P 500 as the explanatory variable.

(e) Predict the rate of return of GE stock if the rate of return of the S&P 500 is 0.10 (10%).

(f ) If the actual rate of return for GE was 13.2% when the rate of return of the S&P 500 was 10%, was GE’s performance above or below average among all years the S&P 500 returns were 10%?

(g) Interpret the slope.

(h) Interpret the intercept, if appropriate.

(i) What proportion of the variability in GE’s rate of return is explained by the variability in the rate of return of the S&P 500?

**View Solution:**## Answer to relevant Questions

The following data represent scores earned by students in Sullivan’s Elementary Algebra course for Chapter 2 (Linear Equations and Inequalities in One Variable) and Chapter 3 (Linear Equations and Inequalities in Two ...In a recent Harris Poll, a random sample of adult Americans (18 years and older) was asked, “When you see an ad emphasizing that a product is ‘Made in America,’ are you more likely to buy it, less likely to buy it, or ...Researchers conducted a study to determine which of two treatments, A or B, is more effective in the treatment of kidney stones. The results of their experiment are given in the table. (a) Which treatment appears to be more ...In a poll conducted by Genworth Financial, a random sample of adults was asked, “What age would you like to live to?” The results of the survey are given in the table. Age ...... Number 18–79 .... 126 80–89 ...How many different simple random samples of size 8 can be obtained from a population whose size is 55?Post your question