Sensex BHEL Sensex BHEL Months Returns Returns Months Returns Returns Apr-04 1.

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The returns for 48 months (Apr-04 — Mar-08) on the BHEL shares and Sensex (market) are given below:

                       Sensex          BHEL                             Sensex  BHEL

    Months        Returns        Returns        Months       Returns Returns

    Apr-04           1.154        – 3.001        Apr-06          6.761 4.929      

   May-04      – 15.835      – 25.796       May-06     – 13.651 – 19.309 

     Jun-04           0.753         15.344         Jun-06          2.026 2.596      

      Jul-04           7.817           8.524          Jul-06          1.269 4.778      

    Aug-04           0.421           1.333        Aug-06          8.890 10.554    

     Sep-04           7.541           3.997         Sep-06          6.457 5.835      

     Oct-04           1.588           8.886         Oct-06          4.075 0.917      

    Nov-04           9.908        – 0.778        Nov-06          5.666 3.810      

    Dec-04           5.909         24.157        Dec-06          0.661 – 8.323   

     Jan-05        – 0.708        – 2.494         Jan-07          2.205 9.534      

     Feb-05           2.409         14.347         Feb-07       – 8.181 – 13.525 

    Mar-05        – 3.292      – 10.601        Mar-07          1.036 3.857      

    Apr-05        – 5.212           3.331        Apr-07          6.122 10.019    

   May-05           9.110         11.103       May-07          4.845 12.485    

     Jun-05           7.129        – 1.816         Jun-07          0.729 9.961      

      Jul-05           6.138         16.370          Jul-07          6.146 12.576    

    Aug-05           2.227           6.169        Aug-07       – 1.494 9.092      

     Sep-05         10.621         14.541         Sep-07        12.877 7.601      

     Oct-05        – 8.595        – 7.292         Oct-07        14.729 28.562    

    Nov-05         11.359         25.718        Nov-07       – 2.393 2.560      

    Dec-05           6.931        – 2.835        Dec-07          4.771 – 3.582   

     Jan-06           5.554         29.665         Jan-08     – 13.005 – 20.128 

     Feb-06           4.540         12.723         Feb-08       – 0.397 10.557    

    Mar-06           8.772         10.894        Mar-08     – 11.004 – 9.879  

       (a)   Calculate BHEL’s beta using (i) data for 48 months from Apr-04 — Mar-08,  (ii) data for 24 months from Apr-04 — Mar-06, and (iii) data for 24 months from Apr-06 — Mar-08. Based on your calculations, comment on beta stability.

       (b)   Assume that risk free rate is 7.9 per cent and risk premium is 12 per cent. Calculate BHEL expected rate of return.

 

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