Question: The returns from the past thirteen quarters on Mercantile Bank Corporation & 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 & 0.019667, respectively.
[A] Determine the beta of Mercantile Bank Corporation stock?
[B] Is Mercantile's beta higher or lower than determine the beta of the average stock?
Note: To determine the beta of Mercantiles stock, divide the covariance of the stock's return with the market's return by the market variance.