# Question

You have just run a regression of monthly returns of American Airlines (AMR) against the S&P 500 over the past five years. You have misplaced some of the output and are trying to derive it from what you have.

a. You know the R2 of the regression is 0.36, and that your stock has a variance of 67%. The market variance is 12%. What is the beta of AMR?

b. You also remember that AMR was not a very good investment during the period of the regression and that it did worse than expected (after adjusting for risk) by 0.39% a month for the five years of the regression. During this period, the average risk-free rate was 4.84%. What was the intercept on the regression?

c. You are comparing AMR to another firm that also has an R2 of 0.48. Will the two firms have the same beta? If not, why not?

a. You know the R2 of the regression is 0.36, and that your stock has a variance of 67%. The market variance is 12%. What is the beta of AMR?

b. You also remember that AMR was not a very good investment during the period of the regression and that it did worse than expected (after adjusting for risk) by 0.39% a month for the five years of the regression. During this period, the average risk-free rate was 4.84%. What was the intercept on the regression?

c. You are comparing AMR to another firm that also has an R2 of 0.48. Will the two firms have the same beta? If not, why not?

## Answer to relevant Questions

You have run a regression of monthly returns on Amgen, a large biotechnology firm, against monthly returns on the S&P 500 Index, and come up with the following output: Rstock = 3.28% + 1.65 RMarket R2 = 0.20 The current one ...Boise Cascade also had debt outstanding of $1.7 billion and a market value of equity of $1.5 billion; the corporate marginal tax rate was 36%. a. Assuming that the current beta of 0.95 for the stock is a reasonable one, ...You have just done a regression of monthly stock returns of HeavyTech, a manufacturer of heavy machinery, on monthly market returns over the past five years and come up with the following regression: RHeavyTech = 0.5% + ...You have a project that does not require an initial investment but has its expenses spread over the life of the project. Can the IRR be estimated for this project? Why or why not? Consider again the project described in Problem 1 (assume that the depreciation reverts to a straight line). Assume that 40% of the initial investment for the project will be financed with debt, with an annual interest rate ...Post your question

0