Calculate betas for each subperiod using the Excel SLOPE function. How stable was each company’s beta? Suppose that you had used these betas to estimate expected rates of return from the CAPM. (Use the following data rf = 2% and rm − rf = 7%) Would your estimates have changed significantly from subperiod to subperiod and from what you can see in the table above?
Explain what a correlation coefficient is and why it is important. What is the difference between beta and correlation coefficients?

 

Stock Amazon Southwest Airlines Johnson & Johnson Coca-Cola Beta (Pi) 1.47 1.35 0.81 0.70 Expected return rf + Bi (rm -rf) 12.3 11.5 7.7 6.9