Month Monthly Returns Month Monthly Returns Month Monthly

Month

Monthly Returns (%)

Month

Monthly Returns (%)

Month

Monthly Returns (%)

Ended

Yahoo

Google

S&P500

Ended

Yahoo

Google

S&P500

Ended

Yahoo

Google

S&P500

Dec-07

-13.241

-0.219

-0.692

Dec-06

-5.442

-5.018

1.403

Dec-05

-2.610

2.457

0.036

Nov-07

-13.794

-1.980

-4.182

Nov-06

2.544

1.767

1.899

Nov-05

8.818

8.806

3.778

Oct-07

15.861

24.632

1.590

Oct-06

4.193

18.534

3.257

Oct-05

9.249

17.595

-1.668

Sep-07

18.093

10.096

3.736

Sep-06

-12.314

6.174

2.575

Sep-05

1.561

10.650

0.810

Aug-07

-2.237

1.029

1.497

Aug-06

6.227

-2.087

2.376

Aug-05

-0.060

-0.612

-0.912

Jul-07

-14.302

-2.430

-3.097

Jul-06

-17.758

-7.805

0.616

Jul-05

-3.781

-2.172

3.717

Jun-07

-5.470

4.979

-1.660

Jun-06

4.463

12.778

0.133

Jun-05

-6.855

6.088

0.143

May-07

2.354

5.628

3.486

May-06

-3.630

-11.035

-2.875

May-05

7.826

26.032

3.179

Apr-07

-10.387

2.885

4.428

Apr-06

1.612

7.164

1.342

Apr-05

1.770

21.877

-1.896

Mar-07

1.393

1.938

1.116

Mar-06

0.624

7.551

1.244

Mar-05

5.051

-3.979

-1.769

Feb-07

9.007

-10.379

-1.950

Feb-06

-6.735

-16.188

0.271

Feb-05

-8.350

-3.900

2.103

Jan-07

10.846

8.908

1.511

Jan-06

-12.264

4.291

2.648

Jan-05

-6.555

1.468

-2.437

Question: (Use table above to solve)

Segregate the return data in the above table into bull and bear markets, using the S&P 500 index as the proxy for the market.

A.) What was the average return for the two companies during these two types of markets? What was the return for the S&P 500 index during those times?

B.) Using the average return measures in a), compute the beta for Yahoo and Google.

C.) According to these beta estimates, which company is riskier?

Month	Monthly Returns (%)	Month	Monthly Returns (%)	Month	Monthly Returns (%)
Ended	Yahoo	Google	S&P500	Ended	Yahoo	Google	S&P500	Ended	Yahoo	Google	S&P500
Dec-07	-13.241	-0.219	-0.692	Dec-06	-5.442	-5.018	1.403	Dec-05	-2.610	2.457	0.036
Nov-07	-13.794	-1.980	-4.182	Nov-06	2.544	1.767	1.899	Nov-05	8.818	8.806	3.778
Oct-07	15.861	24.632	1.590	Oct-06	4.193	18.534	3.257	Oct-05	9.249	17.595	-1.668
Sep-07	18.093	10.096	3.736	Sep-06	-12.314	6.174	2.575	Sep-05	1.561	10.650	0.810
Aug-07	-2.237	1.029	1.497	Aug-06	6.227	-2.087	2.376	Aug-05	-0.060	-0.612	-0.912
Jul-07	-14.302	-2.430	-3.097	Jul-06	-17.758	-7.805	0.616	Jul-05	-3.781	-2.172	3.717
Jun-07	-5.470	4.979	-1.660	Jun-06	4.463	12.778	0.133	Jun-05	-6.855	6.088	0.143
May-07	2.354	5.628	3.486	May-06	-3.630	-11.035	-2.875	May-05	7.826	26.032	3.179
Apr-07	-10.387	2.885	4.428	Apr-06	1.612	7.164	1.342	Apr-05	1.770	21.877	-1.896
Mar-07	1.393	1.938	1.116	Mar-06	0.624	7.551	1.244	Mar-05	5.051	-3.979	-1.769
Feb-07	9.007	-10.379	-1.950	Feb-06	-6.735	-16.188	0.271	Feb-05	-8.350	-3.900	2.103
Jan-07	10.846	8.908	1.511	Jan-06	-12.264	4.291	2.648	Jan-05	-6.555	1.468	-2.437

Solution

According to Beta estimates Google is more risky than Yahoo because the beta is higher for google( 1.255) with Yahoo(0.987)

		A	B	C
	Month	Monthly Returns (%)	Using excel Average return =AVERAGE(A1:A36)	Using excel Average return =AVERAGE(B1:B36)	Using excel Average return =AVERAGE(C1:C36)	Beta of YAHOO=COVARIANCE.P(A1:A36,C1:C36)/VAR.P(C1:C36)	Beta of GOOGLE =COVARIANCE.P(B1:B36,C1:C36)/VAR.P(C1:C36)
	Ended	Yahoo	Google	S&P500	YAHOO	Google	S&P500	YAHOO	GOOGLE
1	7-Dec	-13.241	-0.219	-0.69	-0.953	4.042	0.715	0.987	1.255
2	7-Nov	-13.794	-1.98	-4.18
3	7-Oct	15.861	24.632	1.59
4	7-Sep	18.093	10.096	3.736
5	7-Aug	-2.237	1.029	1.497
6	7-Jul	-14.302	-2.43	-3.1
7	7-Jun	-5.47	4.979	-1.66
8	7-May	2.354	5.628	3.486
9	7-Apr	-10.387	2.885	4.428
10	7-Mar	1.393	1.938	1.116
11	7-Feb	9.007	-10.379	-1.95
12	7-Jan	10.846	8.908	1.511
13	6-Dec	-5.442	-5.018	1.403
14	6-Nov	2.544	1.767	1.899
15	6-Oct	4.193	18.534	3.257
16	6-Sep	-12.314	6.174	2.575
17	6-Aug	6.227	-2.087	2.376
18	6-Jul	-17.758	-7.805	0.616
19	6-Jun	4.463	12.778	0.133
20	6-May	-3.63	-11.035	-2.88
21	6-Apr	1.612	7.164	1.342
22	6-Mar	0.624	7.551	1.244
23	6-Feb	-6.735	-16.188	0.271
24	6-Jan	-12.264	4.291	2.648
25	5-Dec	-2.61	2.457	0.036
26	5-Nov	8.818	8.806	3.778
27	5-Oct	9.249	17.595	-1.67
28	5-Sep	1.561	10.65	0.81
29	5-Aug	-0.06	-0.612	-0.91
30	5-Jul	-3.781	-2.172	3.717
31	5-Jun	-6.855	6.088	0.143
32	5-May	7.826	26.032	3.179
33	5-Apr	1.77	21.877	-1.9
34	5-Mar	5.051	-3.979	-1.77
35	5-Feb	-8.35	-3.9	2.103
36	5-Jan	-6.555	1.468	-2.44