This document contains the results of a regression analysis estimating the beta of Microsoft (MSFT) stock. It found that MSFT has a beta of 1.76 relative to the S&P 500 index, meaning its returns are 1.76 times as volatile as the overall market. The regression model was able to explain 42% of the variation in MSFT's excess returns. The standard error for the beta estimate was 0.2692, indicating a high level of uncertainty in the precision of the 1.76 beta value.

1. SUMMARY OUTPUT
Regression Statistics
Return of Return of Return of Excess Return of Excess Return of Multiple R 0.650456087
Month MSFT S&P 500 Risk Free Month MSFT S&P 500 R Square 0.423093121
1/30/1998 0.15426 0.01015 0.00419 1/30/1998 0.15007 0.00596 Adjusted R Square 0.413146451
2/27/1998 0.13615 0.07045 0.00427 2/27/1998 0.13188 0.06618 Standard Error 0.112534693
3/31/1998 0.05605 0.04995 0.00436 3/31/1998 0.05169 0.04559 Observations 60
4/30/1998 0.00698 0.00908 0.00394 4/30/1998 0.00304 0.00514
5/29/1998 -0.05895 -0.01883 0.00381 5/29/1998 -0.06276 -0.02264 ANOVA
6/30/1998 0.27782 0.03944 0.00392 6/30/1998 0.27390 0.03552 df SS MS F Significance F
7/31/1998 0.01442 -0.01162 0.00395 7/31/1998 0.01047 -0.01557 Regression 1 0.538680309 0.538680309 42.53615607 1.85277E-08
8/31/1998 -0.12735 -0.14580 0.00391 8/31/1998 -0.13126 -0.14971 Residual 58 0.734515312 0.012664057
9/30/1998 0.14723 0.06240 0.00336 9/30/1998 0.14387 0.05904 Total 59 1.273195621
10/30/1998 -0.03805 0.08029 0.00296 10/30/1998 -0.04101 0.07733
11/30/1998 0.15230 0.05913 0.00370 11/30/1998 0.14860 0.05543 Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%
12/31/1998 0.13678 0.05638 0.00366 12/31/1998 0.13312 0.05272 Intercept 0.020990 0.014558 1.441856 0.154721 -0.008150 0.050131 -0.008150 0.050131
1/29/1999 0.26183 0.04101 0.00367 1/29/1999 0.25816 0.03734 S&P 500 1.755793 0.269212 6.521975 0.000000 1.216908 2.294679 1.216908 2.294679
2/26/1999 -0.14214 -0.03228 0.00376 2/26/1999 -0.14590 -0.03604
3/31/1999 0.19400 0.03879 0.00380 3/31/1999 0.19020 0.03499
4/30/1999 -0.09275 0.03794 0.00371 4/30/1999 -0.09646 0.03423
5/28/1999 -0.00769 -0.02497 0.00368 5/28/1999 -0.01137 -0.02865
6/30/1999 0.11774 0.05444 0.00370 6/30/1999 0.11404 0.05074
7/30/1999 -0.04851 -0.03205 0.00371 7/30/1999 -0.05222 -0.03576 MSFT
8/31/1999 0.07866 -0.00625 0.00375 8/31/1999 0.07491 -0.01000 Alpha 2.10% <== The amount MSFT returned in excess of CAPM prediction during the average month in the sample period
9/30/1999 -0.02161 -0.02855 0.00375 9/30/1999 -0.02536 -0.03230 Beta 1.76 <== The desired beta estimate
10/29/1999 0.02208 0.06254 0.00364 10/29/1999 0.01844 0.05890
11/30/1999 -0.01637 0.01906 0.00381 11/30/1999 -0.02018 0.01525
12/31/1999 0.28231 0.05784 0.00425 12/31/1999 0.27806 0.05359
1/31/2000 -0.16167 -0.05090 0.00449 1/31/2000 -0.16616 -0.05539
2/29/2000 -0.08685 -0.02011 0.00443 2/29/2000 -0.09128 -0.02454
3/31/2000 0.18881 0.09672 0.00488 3/31/2000 0.18393 0.09184
4/28/2000 -0.34353 -0.03080 0.00439 4/28/2000 -0.34792 -0.03519
5/31/2000 -0.10305 -0.02192 0.00390 5/31/2000 -0.10695 -0.02582
6/30/2000 0.27872 0.02393 0.00469 6/30/2000 0.27403 0.01924
7/31/2000 -0.12734 -0.01634 0.00490 7/31/2000 -0.13224 -0.02124
8/31/2000 0.00000 0.06070 0.00520 8/31/2000 -0.00520 0.05551
9/29/2000 -0.13608 -0.05348 0.00493 9/29/2000 -0.14101 -0.05841
10/31/2000 0.14197 -0.00495 0.00502 10/31/2000 0.13695 -0.00997
11/30/2000 -0.16697 -0.08007 0.00510 11/30/2000 -0.17207 -0.08517
12/29/2000 -0.24401 0.00405 0.00481 12/29/2000 -0.24882 -0.00076
1/31/2001 0.40778 0.03464 0.00402 1/31/2001 0.40376 0.03062
2/28/2001 -0.03378 -0.09229 0.00418 2/28/2001 -0.03796 -0.09647
3/30/2001 -0.07309 -0.06420 0.00369 3/30/2001 -0.07678 -0.06789
4/30/2001 0.23886 0.07681 0.00312 4/30/2001 0.23574 0.07369
5/31/2001 0.02111 0.00509 0.00287 5/31/2001 0.01824 0.00222
6/29/2001 0.05522 -0.02500 0.00285 6/29/2001 0.05237 -0.02785
7/31/2001 -0.09329 -0.01077 0.00303 7/31/2001 -0.09632 -0.01380
8/31/2001 -0.13809 -0.06411 0.00281 8/31/2001 -0.14090 -0.06692
9/28/2001 -0.10307 -0.08172 0.00198 9/28/2001 -0.10505 -0.08370
10/31/2001 0.13641 0.01810 0.00174 10/31/2001 0.13467 0.01636
11/30/2001 0.10421 0.07518 0.00144 11/30/2001 0.10277 0.07374
12/31/2001 0.03177 0.00757 0.00136 12/31/2001 0.03041 0.00621
ESTIMATING STOCK BETA (MSFT)
| Deb Sahoo | MBA, Finance, University of Michigan | MS, EE, University of Southern California | B-Tech, EE, IIT |
Cell M18 contains the
standard error for our
estimate of Microsoft's beta.

2. 1/31/2002 -0.03834 -0.01557 0.00144 1/31/2002 -0.03978 -0.01701
2/28/2002 -0.08429 -0.02077 0.00131 2/28/2002 -0.08560 -0.02208
3/28/2002 0.03377 0.03674 0.00149 3/28/2002 0.03228 0.03525
4/30/2002 -0.13348 -0.06142 0.00145 4/30/2002 -0.13493 -0.06287
5/31/2002 -0.02583 -0.00908 0.00154 5/31/2002 -0.02737 -0.01062
6/28/2002 0.07445 -0.07246 0.00144 6/28/2002 0.07301 -0.07390
7/31/2002 -0.12285 -0.07899 0.00141 7/31/2002 -0.12426 -0.08040
8/30/2002 0.02293 0.00488 0.00144 8/30/2002 0.02149 0.00344
9/30/2002 -0.10880 -0.11001 0.00145 9/30/2002 -0.11025 -0.11146
10/31/2002 0.22245 0.08644 0.00141 10/31/2002 0.22104 0.08503
11/29/2002 0.07874 0.05707 0.00141 11/29/2002 0.07733 0.05566
12/31/2002 -0.10368 -0.06033 0.00107 12/31/2002 -0.10475 -0.06140