Exercise 1, Chapter 18 Page 325

Calculate the return on the ENI share and on the Italian index over 13

months until 1 January 2011. To help you, you have a record of the share

price and of the general index. What is the total risk of the ENI share? What

is the coefficient of ENI? What portion of the total risk of the ENI share is

explained by market risk?

period	JAN 10	FEB 10	MAR 10	APR 10	MAY 10	JUN 10	JUL 10	AUG 10	SEP 10	OCT 10	NOV 10	DEC 10	JAN 10
ENI	16.93	16.57	17.37	16.86	15.2	15.19	15.69	15.67	15.83	16.19	15.50	16.34	17.30
Italian Index	21896	21068	22847	21562	19544	19311	21021	19734	20505	21450	19105	20173	22050

ANSWER:

Returns on the ENI share: 17.30 (Jan 11) / 16.93 (Jan 10) 1 = 2.2%

Returns on the Italian Index: 22,050 (Jan 11) / 21,896 (Jan 10) = 0.7%

ENI risk = 4.59%

Index risk:

= 7.35% and = 0.56

89.6% = (0.56 * 7.35%) / 4.59%

Based on the answers, how can we explain as a financial manager what happens?

How does it help the company's financial strategy? What changes could be made? Discuss anything else pertinent to the exercise