Estimating the beta of Facebook, Inc

Part I and II

The data are collected and the computations are done based on the adj close price for the stock .

Part III returns % calculation

The data collected for the stocks and the S& P 500 index ,

The Monthly returns are calculated based on the closing prices of the Adjusted close price

For FB

FB Returns = New month price –Old month price / Old months price

Excel formula

=(B4-B3)/B3

For S&P 500

SP 500 returns = New month price –Old month price / Old months price

Excel formula

=(C4-C3)/C3

The returns for the FB and S&P are as follows

Part IV

Regression Model

The regression model is run using the data analysis regression in excel

Data – Data analysis --- regression .

X variable = SP500

Y variable = FB stock return

The output of the regression are as follows

So from the Highlighted part in the regression output in the table we see that

Beta of FB is 1.22 as is shown in the regression output box

Part V

The regression model originally estimed by the regression model

Regression model

Y= a+ Beta X

or

FB return = 0.0068 + 1.22 S&P500 return %

Beta reported

Beta reported in the yahoo finance is 1.27

So the significance of the beta is as follows

· Beta signifies that the returns of FB are 1.22 times more volatile than that of the inde returns in S&P 500

· If the index moves my 1 unit , FB returns will move by 1.22 unit

· The beta estimated by the yahoo finance includes the settlement accuracy of the prices and are computed on a real-time basis . hence the value os a bit on higher side at 1.27

· Beta measures the market risk in the portfolio consisting of this asset class

please see the attached file.for the complete solution.