K Co. is a publicly listed company involved in the production of highly technical and sophisticated electronic components for complex machinery. It has a number of diverse and popular products, an active research and development department, significant cash reserves and a highly talented management who are very good in getting products to market quickly. A new industry that K Co. is looking to venture into is biotechnology, which has been expanding rapidly and there are strong indications that this recent growth is set to continue. However, K Co. has limited experience in this industry. Therefore, it believes that the best and quickest way to expand would be through acquiring a company already operating in this industry sector. Discussions taken place about the possibility of acquiring Tee Co. being acquired by K Co. Price of Tee company in stock market during last one year are as follows.

K Co. is a publicly listed company involved in the production of highly technical and sophisticated electronic components for complex machinery. It has a number of diverse and popular products, an active research and development department, significant cash reserves and a highly talented management who are very good in getting products to market quickly.

A new industry that K Co. is looking to venture into is biotechnology, which has been expanding rapidly and there are strong indications that this recent growth is set to continue. However, K Co. has limited experience in this industry. Therefore, it believes that the best and quickest way to expand would be through acquiring a company already operating in this industry sector.

Discussions taken place about the possibility of acquiring Tee Co. being acquired by K Co. Price of Tee company in stock market during last one year are as follows.

Price at the end of month

Month Month end Price KSE 100 INDEX

Jan 175 32600

Feb 185 33900

March 152 33500

April 190 34000

May 195 33500

June 188 33800

July 190 33700

Aug 195 33200

Sep 190 32900

Oct 185 33100

Nov 190 33900

Dec 88 34100

a) Calculate average return for both stock and market

b) Calculate Standard deviation for both

c) Calculate coefficient of variation for both

d) Calculate Beta of stock

Answer:

a) AVERAGE RETURN = -3.69%, 0.42%

b) STANDARD DEVIATION = 19.38%, 1.74%

c) COEFF OF VARIATION = -5.2562, 4.1035

d) BETA = 1.89

Step-by-step explanation:

Month Month-end-Price RETURN KSE-100-INDEX RETURN

Jan 175 32600

Feb 185 5.71% 33900 3.99%

March 152 -17.84% 33500 -1.18%

April 190 25.00% 34000 1.49%

May 195 2.63% 33500 -1.47%

June 188 -3.59% 33800 0.90%

July 190 1.06% 33700 -0.30%

Aug 195 2.63% 33200 -1.48%

Sep 190 -2.56% 32900 -0.90%

Oct 185 -2.63% 33100 0.61%

Nov 190 2.70% 33900 2.42%

Dec 88 -53.68% 34100 0.59%

AVERAGE -3.69% 0.42% =MEAN

RETURN

STANDARD 19.38% 1.74% =STDDEV

DEVIATION

COEFF OF -5.2562 4.1035 =STD/MEAN

VARIATION

VARIANCE 3.76% 0.03% =VAR

COVARIANCE 0.000569039 =COVAR

BETA 1.89 =COVAR / VARIANCE (KSE 100 INDEX)