Final answer:
To calculate the beta for each company, perform regression analysis and compare the historical returns of the company's stock to the overall market returns. Beta is a measure of systematic risk and helps investors understand the risk associated with a particular stock. The required rate of return can be calculated using the risk-free rate and beta.
Step-by-step explanation:
To calculate the beta for each company, we need to perform regression analysis.
To calculate the beta of a company, we need to compare the historical returns of the company's stock to the overall market returns.
Beta is a measure of the systematic risk of a stock or portfolio in relation to the market as a whole. It helps investors to understand how much risk they are taking on by investing in a particular stock.
The formula to calculate beta is as follows:
Beta = Covariance(Company Returns, Market Returns) / Variance(Market Returns)
By calculating the beta for each company, we can determine their sensitivity to market movements and assess their riskiness compared to the market.
To determine the required rate of return, we can use the following formula:
Required Rate of Return = Risk-Free Rate + Beta * Market Risk Premium
In this case, the risk-free rate is 4% and the market risk premium is 6%. We can plug in the beta values for each company to calculate their required rate of return.
To assess the economic indicators, we would need more information about the specific indicators and how they relate to the companies in question.
Overall, performing regression analysis, calculating beta, and determining the required rate of return are important steps in evaluating the risk and potential return of investments.