1. Intuitively, which of the three firms would you say is the most risky? Least risky?
Intuitively, Amazon is the most risky company and GE is the least risky company. The reason is that GE is in its mature phase of business life cycle, and is a multiple line business, which implies lower risk from diversification. Amazon is in its growing phase and is a single line business. The TJX Companies is a single line business.
2. According to the standard version of the CAPM, risk is captured by beta. Calculate the CAPM beta for each of the three firms, using the returns in the attached spreadsheet labeled as gdiscount rate-returnsh (you can do this in directly in excel, or, if you prefer, using a separate statistics program). How does the ranking of the estimated betas compare to your intuitive answer to Question 1?
@ GE TJX Amazon
alpha 0.727105366 0.550931113 12.9286468
beta 1.130431463 1.208639732 2.589165097
Rsq 0.534519433 0.170198571 0.157280478
The regression......
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