statistical analysis
You should use MSExcel for your statistical analysis to answer the following questions.Please make sure you include all your regression output as an appendix to your submission.
(a) Using XOM and MKT data plot the returns for the entire period and comment on the relative fluctuations of these two variables. [2]
(b) Calculate and construct the series of the risk premium on Microsoft and Mobil-Exxon. Also calculate the risk premium on the market portfolio for the entire period.Use the data for “MSFT”, “XOM”, “MARKET” and “RKFREE”. [3]
(c) Present the descriptive statistics of monthly returns of MSFT and XOM. Interpret and compare the measures of central tendency and deviation of the variables. [3]
(d) Estimate the CAPM model for Microsoft and Mobil-Exxon, and comment on their estimated beta values. [4]
(e) Finance theory suggests that the intercept parameter should be zero. Does this seem correct given your estimates? [2]
(f) Suppose a financial consultant believes that Microsoft’s beta value is equal to 1. Test the consultant’s claim of Microsoft’s beta value at 1% level of significance against the alternative that it is less than one. Interpret your result. [2]
(g) Predict the risk premium for Microsoft and Mobil-Exxon given the risk premium for market portfolio of 7%. [2]
(h) Econometricians often find it useful to examine the impact of a number of economic variables such as Industrial Production and Interest rate on the risk premium of a specific security. Incorporating these two explanatory variables, viz. US Industrial production index and US Interest Rates (Federal Funds Rate) in the CAPM, estimate the following model for both Microsoft and Mobil-Exxon:
Where the variables Y and R represent US Industrial Production Index and US Interest Rates, respectively. These data are provided in the worksheet labelled ‘IPIndex&InterestRateData’ in the excel datafile. [4]
(i) Do you think that the risk premium on the market portfolio, Industrial production index and interest rate jointly explain the risk premium for Microsoft and Mobil-Exxon’s securities? Explain your answer. [4]
(j) Test whether industrial production and Interest rate together significantly explain Mobil-Exxon’s risk premium. [2]
(k) Briefly summarize your findings about Microsoft’s and Mobil-Exxon’s stock and their relationship to the stock market. [2]
Notes: This is an individual assignment. All Excel worksheets should be attached at the end of your submitted assignment. These should clearly demonstrate the work undertaken independently by you. Submissions should be made both in hardcopy and online on DSO. On-campus students must submit to the campus specific faculty office while the off campus students submit the assignments as per the information provided in the unit guide and should contact the Division of Student Affairs (DSA).
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