Question

Nicklaus Electronics manufactures electronic components used in the computer and space industries. The annual rate of return on the market portfolio and the annual rate of return on Nicklaus Electronics stock for the last 36 months are listed in the file P11_50.xlsx.
The company wants to calculate the systematic risk of its common stock. The rate of return Yt in period t on a security is hypothesized to be related to the rate of return mt on a market portfolio by the equation
Yt = α + βmt + mt + εt

Here, α is the risk-free rate of return, β is the security’s systematic risk, and εt is an error term. Estimate the systematic risk of the common stock of Nicklaus Electronics. Would you say that Nicklaus stock is a risky investment? Why or why not?



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  • CreatedApril 01, 2015
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