Open an excel spreadsheet and enter the following data:

Return on Return on

Year Stock Z S&P 500

1 10% 5%

2 -15 -10

3 15 10

4 5 0

5 -5 -10

Write a linear equation relating stock Z returns to returns on the S&P 500 index.

What type of relationship between the two variables is predicted from your equation?

If the return on the S&P 500 index is expected to be 10% over the next year, using your regression equation what is the expected return on stock Z over the same period?