Computation of Beta Value
The returns from the past 13 quarters on Mercantile Bank Corporation and the market are listed below.
|
Mercantile
|
Market
|
|
-0.009
|
0.023
|
|
0.051
|
0.058
|
|
-0.001
|
-0.02
|
|
-0.045
|
-0.05
|
|
0.085
|
0.071
|
|
0
|
0.012
|
|
-0.08
|
-0.075
|
|
0.02
|
0.05
|
|
0.125
|
0.12
|
|
0.11
|
0.049
|
|
-0.1
|
-0.03
|
|
0.04
|
0.028
|
The covariance of Mercantile Bank Corporation's return with the market's return is 0.038711.
The market variance is 0.038588.The expected returns on Mercantile and the market are 0.016333 and 0.019667, respectively.
- What is the beta of Mercantile Bank Corporation stock?
- Is Mercantile's beta higher or lower than the beta of the average stock?
Note: To compute the beta of Mercantile's stock, divide the covariance of the stock's return with the market's return by the market variance