# A financial analyst seeks to determine the relationship between the return on PepsiCos common stock and the

## Question:

RPep = .06 + .92RS&P.

Here, returns are expressed in percentage terms. The t-values for the coefficients are 2.78 and 3.4, respectively, and the equation’s R2 is .28.

a. Do the respective coefficients differ significantly from zero?

b. The value of R2 seems quite low. Does this mean the equation is invalid? Given the setting, why might one expect a low R2?

c. Suppose the S&P index is expected to fall by 1 percent over the next month. What is the expected return on PepsiCo’s stock?

Common Stock

Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Expected Return

The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these...

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**Related Book For**

## Managerial economics

**ISBN:** 978-1118041581

7th edition

**Authors:** william f. samuelson stephen g. marks