This workbook shows how to calculate betas using the functions available in Microsoft Excel.

Note that there are two additional worksheets in this workbook: Weekly and Monthly. This is
because ValueLine uses weekly data and Merrill Lynch uses monthly data to calculate their
respective betas. We will calculate both types using both data frequencies and the return
calculations favored by the providers. It should be noted that a "plain" (or, unadjusted) beta is
normally calculated using the Merrill Lynch methodology without the adjustment. The next few
boxes describe each technique.

The purpose of calculating the adjusted betas is to account for the well-documented tendency for
betas to "regress to the mean."

Calculating Unadjusted Betas

The unadjusted beta is the basis for all adjusted beta calculations. It is usually calculated as
follows (note that there are frequently small differences in the methodology):

1) Calculate the periodic (usually monthly) returns for a security and an index (usually the S&P
500). This is a total return (dividend yield plus capital gains yield).

2) Calculate the covariance of the two return streams and the variance of the index returns. Note
that we should use the population variance to be consistent with the population covariance that
Excel provides. Use the Covar() and VarP() functions for these calculations.

3) To calculate the beta, divide the covariance of returns by the variance of the index returns. This
is your unadjusted beta.

Calculating Merrill Lynch's Adjusted Betas

1) Start with the unadjusted beta as calculated above.

2) Now, make the adjustment by using the following formula:

ML Beta = 0.33743 + 0.66257 (Unadj. Beta)

3) Note that ML uses a simple percentage change to calculate the monthly capital gains yield.

Calculating ValueLine's Adjusted Betas

1) Start with the unadjusted beta as calculated above.

2) Now, make the adjustment by using the following formula:

Calculating ValueLine's Adjusted Betas

1) Start with the unadjusted beta as calculated above.

2) Now, make the adjustment by using the following formula:

VL Beta = 0.35 + 0.67 (Unadj. Beta)

3) To get the exact number as VL, you should round the result to two decimal places.

4) Note that VL uses log price relatives (i.e., the natural log of one plus the total return - this
gives a continuously compounded return) and weekly data.

References

"A Comparison of Published Betas," by Reilly and Wright, The Journal of Portfolio
Management, Spring 1988 (pp. 64-69).

"Betas and Their Regression Tendencies," by Blume, Journal of Finance 30, June 1975 (pp. 785-
795).
This worksheet shows how to calculate the unadjusted beta and the
ValueLine beta. Note that we are using weekly data, log price
relative (i.e., continuously compounded) returns, and I'm ignoring
dividends for simplicity.

MSFT
Unadj Beta 1.03
VL Beta 1.04

Weekly prices (8/16/93 to 8/17/98) Returns

DATE SPX MSFT SPX MSFT
8/16/1993 456.16 9.53
8/23/1993 460.54 8.98 0.96% -5.91%
8/30/1993 461.34 9.47 0.17% 5.26%
9/6/1993 461.72 9.75 0.08% 2.92%
9/13/1993 458.83 9.5 -0.63% -2.60%
9/20/1993 457.63 10 -0.26% 5.13%
9/27/1993 461.28 10.25 0.79% 2.47%
10/4/1993 460.31 10.56 -0.21% 3.01%
10/11/1993 469.5 10.09 1.98% -4.54%
10/18/1993 463.27 10.05 -1.34% -0.47%
10/25/1993 467.83 10.02 0.98% -0.31%
11/1/1993 459.57 9.84 -1.78% -1.73%
11/8/1993 465.39 10.23 1.26% 3.89%
11/15/1993 462.6 10.02 -0.60% -2.15%
11/22/1993 463.06 9.88 0.10% -1.42%
11/29/1993 464.89 10.72 0.39% 8.20%
12/6/1993 463.93 10.23 -0.21% -4.63%
12/13/1993 466.38 10.06 0.53% -1.69%
12/20/1993 467.38 10.11 0.21% 0.46%
12/27/1993 466.45 10.08 -0.20% -0.31%
1/3/1994 469.9 10.66 0.74% 5.58%
1/10/1994 474.91 10.7 1.06% 0.44%
1/17/1994 474.72 10.78 -0.04% 0.73%
1/24/1994 478.7 10.61 0.83% -1.61%
1/31/1994 469.81 10.16 -1.87% -4.36%
2/7/1994 470.18 9.84 0.08% -3.12%
2/14/1994 467.69 10 -0.53% 1.57%
2/21/1994 466.07 10.13 -0.35% 1.24%
2/28/1994 464.74 10.13 -0.29% 0.00%
3/7/1994 466.44 10.22 0.37% 0.92%
 3/14/1994 471.06 10.59 0.99% 3.60%
3/21/1994 460.58 10.94 -2.25% 3.20%
3/28/1994 445.77 10.59 -3.27% -3.20%
4/4/1994 447.1 10.88 0.30% 2.62%
4/11/1994 446.18 10.61 -0.21% -2.48%
4/18/1994 447.63 11.47 0.32% 7.79%
4/25/1994 450.91 11.56 0.73% 0.82%
5/2/1994 447.82 11.56 -0.69% 0.00%
5/9/1994 444.14 12.06 -0.83% 4.23%
5/16/1994 454.92 12.22 2.40% 1.28%
5/23/1994 457.33 13.09 0.53% 6.92%
5/30/1994 460.13 13.22 0.61% 0.95%
6/6/1994 458.67 13.14 -0.32% -0.59%
6/13/1994 458.45 13.25 -0.05% 0.83%
6/20/1994 442.8 12.38 -3.47% -6.83%
6/27/1994 446.2 12.56 0.76% 1.51%
7/4/1994 449.55 12.38 0.75% -1.51%
7/11/1994 454.16 12.16 1.02% -1.79%
7/18/1994 453.11 12.64 -0.23% 3.91%
7/25/1994 458.26 12.88 1.13% 1.83%
8/1/1994 457.09 13.13 -0.26% 1.92%
8/8/1994 461.94 13.81 1.06% 5.11%
8/15/1994 463.68 13.72 0.38% -0.68%
8/22/1994 473.8 14.22 2.16% 3.58%
8/29/1994 470.99 14 -0.59% -1.55%
9/5/1994 468.18 14.22 -0.60% 1.55%
9/12/1994 471.19 14.22 0.64% 0.00%
9/19/1994 459.67 14 -2.48% -1.55%
9/26/1994 462.71 14.03 0.66% 0.22%
10/3/1994 455.1 13.59 -1.66% -3.16%
10/10/1994 469.1 13.98 3.03% 2.83%
10/17/1994 464.89 14.84 -0.90% 5.97%
10/24/1994 473.77 15.53 1.89% 4.52%
10/31/1994 462.28 15.38 -2.46% -1.01%
11/7/1994 462.35 15.56 0.02% 1.22%
11/14/1994 461.47 16.03 -0.19% 2.96%
11/21/1994 452.29 15.56 -2.01% -2.96%
11/28/1994 453.3 15.81 0.22% 1.59%
12/5/1994 446.96 15.78 -1.41% -0.20%
12/12/1994 458.8 15.84 2.61% 0.40%
12/19/1994 459.83 15.22 0.22% -4.02%
12/26/1994 459.27 15.28 -0.12% 0.41%
1/2/1995 460.68 15.16 0.31% -0.82%
 1/9/1995 465.97 15.69 1.14% 3.45%
1/16/1995 464.78 15.41 -0.26% -1.81%
1/23/1995 470.39 14.97 1.20% -2.88%
1/30/1995 478.65 15.03 1.74% 0.41%
2/6/1995 481.46 15.5 0.59% 3.07%
2/13/1995 481.97 15.09 0.11% -2.65%
2/20/1995 488.11 15.31 1.27% 1.44%
2/27/1995 485.42 15.91 -0.55% 3.80%
3/6/1995 489.57 17.14 0.85% 7.48%
3/13/1995 495.52 17.48 1.21% 1.98%
3/20/1995 500.97 18.47 1.09% 5.48%
3/27/1995 500.71 17.78 -0.05% -3.80%
4/3/1995 506.42 17.41 1.13% -2.13%
4/10/1995 509.23 18.13 0.55% 4.05%
4/17/1995 508.49 18.75 -0.15% 3.39%
4/24/1995 514.71 20.44 1.22% 8.62%
5/1/1995 520.12 20 1.05% -2.17%
5/8/1995 525.55 20.19 1.04% 0.94%
5/15/1995 519.19 21.34 -1.22% 5.57%
5/22/1995 523.65 21.88 0.86% 2.46%
5/29/1995 532.51 20.78 1.68% -5.13%
6/5/1995 527.94 21.22 -0.86% 2.09%
6/12/1995 539.83 21.75 2.23% 2.47%
6/19/1995 549.71 22.78 1.81% 4.63%
6/26/1995 544.75 22.59 -0.91% -0.82%
7/3/1995 556.37 23.91 2.11% 5.64%
7/10/1995 559.89 25.91 0.63% 8.03%
7/17/1995 553.62 23 -1.13% -11.90%
7/24/1995 562.93 23.16 1.67% 0.68%
7/31/1995 558.94 23.47 -0.71% 1.34%
8/7/1995 555.11 24.13 -0.69% 2.76%
8/14/1995 559.21 24.28 0.74% 0.64%
8/21/1995 560.1 23.59 0.16% -2.87%
8/28/1995 563.84 22.44 0.67% -5.02%
9/4/1995 572.68 23.88 1.56% 6.21%
9/11/1995 583.35 23.36 1.85% -2.18%
9/18/1995 581.73 22.44 -0.28% -4.02%
9/25/1995 584.41 22.63 0.46% 0.83%
10/2/1995 582.49 21.47 -0.33% -5.24%
10/9/1995 584.5 21.56 0.34% 0.44%
10/16/1995 587.46 23.88 0.51% 10.19%
10/23/1995 579.7 25 -1.33% 4.60%
10/30/1995 590.57 24.88 1.86% -0.50%
 11/6/1995 592.72 24.22 0.36% -2.67%
11/13/1995 600.07 21.84 1.23% -10.32%
11/20/1995 599.97 22 -0.02% 0.71%
11/27/1995 606.98 21.56 1.16% -2.01%
12/4/1995 617.48 23.63 1.72% 9.13%
12/11/1995 616.34 22.09 -0.18% -6.70%
12/18/1995 611.95 22.63 -0.71% 2.37%
12/25/1995 615.93 21.94 0.65% -3.08%
1/1/1996 616.71 21.59 0.13% -1.58%
1/8/1996 601.81 21.44 -2.45% -0.73%
1/15/1996 611.83 22.97 1.65% 6.90%
1/22/1996 621.62 22.63 1.59% -1.51%
1/29/1996 635.84 23.25 2.26% 2.72%
2/5/1996 656.37 25.03 3.18% 7.38%
2/12/1996 647.98 24.47 -1.29% -2.27%
2/19/1996 659.08 25.88 1.70% 5.59%
2/26/1996 644.37 23.88 -2.26% -8.04%
3/4/1996 633.5 23.78 -1.70% -0.39%
3/11/1996 641.43 25.59 1.24% 7.35%
3/18/1996 650.62 25.28 1.42% -1.23%
3/25/1996 645.5 25.78 -0.79% 1.96%
4/1/1996 655.86 26.09 1.59% 1.21%
4/8/1996 636.71 25.28 -2.96% -3.17%
4/15/1996 645.07 27.44 1.30% 8.19%
4/22/1996 653.46 28.38 1.29% 3.36%
4/29/1996 641.63 27.72 -1.83% -2.34%
5/6/1996 652.09 28.72 1.62% 3.54%
5/13/1996 668.91 29.25 2.55% 1.83%
5/20/1996 678.51 29.63 1.42% 1.27%
5/27/1996 669.12 29.69 -1.39% 0.21%
6/3/1996 673.31 30.31 0.62% 2.08%
6/10/1996 665.85 30.75 -1.11% 1.43%
6/17/1996 666.84 30.97 0.15% 0.71%
6/24/1996 670.63 30.03 0.57% -3.08%
7/1/1996 657.44 29.59 -1.99% -1.47%
7/8/1996 646.19 28.09 -1.73% -5.20%
7/15/1996 638.73 30.25 -1.16% 7.38%
7/22/1996 635.9 29.78 -0.44% -1.55%
7/29/1996 662.49 30.84 4.10% 3.51%
8/5/1996 662.1 31.13 -0.06% 0.91%
8/12/1996 665.21 31.06 0.47% -0.20%
8/19/1996 667.03 30.81 0.27% -0.81%
8/26/1996 651.99 30.63 -2.28% -0.61%
 9/2/1996 655.68 30.63 0.56% 0.00%
9/9/1996 680.54 32.75 3.72% 6.71%
9/16/1996 687.03 34.53 0.95% 5.30%
9/23/1996 686.19 33.59 -0.12% -2.75%
9/30/1996 701.46 34.09 2.20% 1.48%
10/7/1996 700.66 34.28 -0.11% 0.55%
10/14/1996 710.82 33.69 1.44% -1.74%
10/21/1996 700.92 34.11 -1.40% 1.24%
10/28/1996 703.77 34.34 0.41% 0.69%
11/4/1996 730.82 35.88 3.77% 4.36%
11/11/1996 737.62 37.25 0.93% 3.76%
11/18/1996 748.73 37.63 1.49% 1.00%
11/25/1996 757.02 39.22 1.10% 4.15%
12/2/1996 739.6 38.22 -2.33% -2.58%
12/9/1996 728.64 40 -1.49% 4.55%
12/16/1996 748.87 41.81 2.74% 4.43%
12/23/1996 756.79 42.13 1.05% 0.74%
12/30/1996 748.03 42.31 -1.16% 0.45%
1/6/1997 759.5 42.13 1.52% -0.45%
1/13/1997 776.17 43.56 2.17% 3.36%
1/20/1997 770.52 47.97 -0.73% 9.63%
1/27/1997 786.16 51 2.01% 6.13%
2/3/1997 789.56 50.19 0.43% -1.60%
2/10/1997 808.48 48.94 2.37% -2.52%
2/17/1997 801.77 47.5 -0.83% -2.98%
2/24/1997 790.82 48.75 -1.38% 2.60%
3/3/1997 804.97 48.38 1.77% -0.77%
3/10/1997 793.17 49.5 -1.48% 2.30%
3/17/1997 784.1 47 -1.15% -5.18%
3/24/1997 773.88 46.88 -1.31% -0.27%
3/31/1997 757.9 47.09 -2.09% 0.47%
4/7/1997 737.65 47.5 -2.71% 0.86%
4/14/1997 766.34 53.81 3.82% 12.48%
4/21/1997 765.37 56.81 -0.13% 5.43%
4/28/1997 812.97 60.38 6.03% 6.08%
5/5/1997 824.78 58.38 1.44% -3.37%
5/12/1997 829.75 57.72 0.60% -1.13%
5/19/1997 847.03 61.44 2.06% 6.24%
5/26/1997 848.28 62 0.15% 0.91%
6/2/1997 858.01 62.03 1.14% 0.05%
6/9/1997 893.27 64.81 4.03% 4.39%
6/16/1997 898.7 64.94 0.61% 0.19%
6/23/1997 887.3 63.75 -1.28% -1.85%
 6/30/1997 916.92 64.78 3.28% 1.60%
7/7/1997 916.68 64.88 -0.03% 0.14%
7/14/1997 915.3 70.25 -0.15% 7.96%
7/21/1997 938.79 69.25 2.53% -1.43%
7/28/1997 947.14 70.31 0.89% 1.52%
8/4/1997 933.54 70 -1.45% -0.45%
8/11/1997 900.81 66.44 -3.57% -5.22%
8/18/1997 923.54 68.63 2.49% 3.24%
8/25/1997 899.47 66.09 -2.64% -3.76%
9/1/1997 929.05 68.66 3.24% 3.80%
9/8/1997 923.91 68.97 -0.55% 0.45%
9/15/1997 950.51 67.59 2.84% -2.01%
9/22/1997 945.22 66.69 -0.56% -1.35%
9/29/1997 965.03 67.47 2.07% 1.16%
10/6/1997 966.98 68.25 0.20% 1.15%
10/13/1997 944.16 66.13 -2.39% -3.16%
10/20/1997 941.64 67.69 -0.27% 2.34%
10/27/1997 914.62 65 -2.91% -4.05%
11/3/1997 927.51 65.78 1.40% 1.19%
11/10/1997 928.35 66.66 0.09% 1.32%
11/17/1997 963.09 68.94 3.67% 3.37%
11/24/1997 955.4 70.75 -0.80% 2.59%
12/1/1997 983.79 71.56 2.93% 1.14%
12/8/1997 953.39 68.38 -3.14% -4.56%
12/15/1997 946.78 64.34 -0.70% -6.08%
12/22/1997 936.46 60.38 -1.10% -6.37%
12/29/1997 975.04 65.56 4.04% 8.24%
1/5/1998 927.69 63.5 -4.98% -3.20%
1/12/1998 961.51 67.63 3.58% 6.29%
1/19/1998 957.59 69.13 -0.41% 2.19%
1/26/1998 980.28 74.59 2.34% 7.61%
2/2/1998 1012.46 79.06 3.23% 5.82%
2/9/1998 1020.09 78.75 0.75% -0.40%
2/16/1998 1034.21 77.56 1.37% -1.52%
2/23/1998 1049.34 84.75 1.45% 8.86%
3/2/1998 1055.69 82.75 0.60% -2.39%
3/9/1998 1068.61 82.38 1.22% -0.45%
3/16/1998 1099.16 81.81 2.82% -0.68%
3/23/1998 1095.44 87.81 -0.34% 7.08%
3/30/1998 1122.7 93 2.46% 5.74%
4/6/1998 1110.67 89 -1.08% -4.40%
4/13/1998 1122.72 92.13 1.08% 3.45%
4/20/1998 1107.9 92.13 -1.33% 0.00%
4/27/1998 1121 89.63 1.18% -2.75%
5/4/1998 1108.14 85.75 -1.15% -4.42%
5/11/1998 1108.73 89.44 0.05% 4.21%
5/18/1998 1110.47 85.56 0.16% -4.43%
5/25/1998 1090.82 84.81 -1.79% -0.88%
6/1/1998 1113.86 86.25 2.09% 1.68%
6/8/1998 1098.84 85.75 -1.36% -0.58%
6/15/1998 1100.65 94.69 0.16% 9.92%
6/22/1998 1133.2 104.44 2.91% 9.80%
6/29/1998 1146.42 107.25 1.16% 2.66%
7/6/1998 1164.33 113.19 1.55% 5.39%
7/13/1998 1186.75 117.94 1.91% 4.11%
7/20/1998 1140.8 113.81 -3.95% -3.56%
7/27/1998 1120.67 109.94 -1.78% -3.46%
8/3/1998 1089.45 105.88 -2.83% -3.77%
8/10/1998 1062.75 104.25 -2.48% -1.55%
8/17/1998 1081.24 110.63 1.72% 5.94%
This worksheet shows how to calculate the unadjusted beta and the
Merrill Lynch beta. Note that we are using monthly data, simple
returns (% change), and I'm ignoring dividends.

MSFT
Unadj Beta 1.25
ML Beta 1.17

Monthly prices (Aug 1993 to Aug 1998) Returns

DATE SPX MSFT SPX MSFT
Aug-93 463.56 9.39
Sep-93 458.93 10.31 -1.00% 9.82%
Oct-93 467.83 10.02 1.94% -2.88%
Nov-93 461.79 10 -1.29% -0.16%
Dec-93 466.45 10.08 1.01% 0.78%
Jan-94 481.61 10.64 3.25% 5.59%
Feb-94 467.14 10.31 -3.00% -3.08%
Mar-94 445.77 10.59 -4.57% 2.72%
Apr-94 450.91 11.56 1.15% 9.15%
May-94 456.5 13.44 1.24% 16.22%
Jun-94 444.27 12.91 -2.68% -3.96%
Jul-94 458.26 12.88 3.15% -0.24%
Aug-94 475.49 14.53 3.76% 12.86%
Sep-94 462.71 14.03 -2.69% -3.44%
Oct-94 472.35 15.75 2.08% 12.25%
Nov-94 453.69 15.72 -3.95% -0.20%
Dec-94 459.27 15.28 1.23% -2.79%
Jan-95 470.42 14.84 2.43% -2.86%
Feb-95 487.39 15.75 3.61% 6.10%
Mar-95 500.71 17.78 2.73% 12.90%
Apr-95 514.71 20.44 2.80% 14.94%
May-95 533.4 21.17 3.63% 3.59%
Jun-95 544.75 22.59 2.13% 6.72%
Jul-95 562.06 22.63 3.18% 0.14%
Aug-95 561.88 23.13 -0.03% 2.21%
Sep-95 584.41 22.63 4.01% -2.16%
Oct-95 581.5 25 -0.50% 10.50%
Nov-95 605.37 21.78 4.10% -12.88%
Dec-95 615.93 21.94 1.74% 0.72%
Jan-96 636.02 23.13 3.26% 5.41%
Feb-96 640.43 24.67 0.69% 6.69%
Mar-96 645.5 25.78 0.79% 4.49%
Apr-96 654.17 28.31 1.34% 9.82%
May-96 669.12 29.69 2.29% 4.86%
Jun-96 670.63 30.03 0.23% 1.16%
Jul-96 639.95 29.47 -4.57% -1.87%
Aug-96 651.99 30.63 1.88% 3.92%
Sep-96 687.33 32.97 5.42% 7.65%
Oct-96 705.27 34.31 2.61% 4.08%
Nov-96 757.02 39.22 7.34% 14.30%
Dec-96 740.74 41.31 -2.15% 5.34%
Jan-97 786.16 51 6.13% 23.45%
Feb-97 790.82 48.75 0.59% -4.41%
Mar-97 757.12 45.84 -4.26% -5.96%
Apr-97 801.34 60.75 5.84% 32.51%
May-97 848.28 62 5.86% 2.06%
Jun-97 885.14 63.19 4.35% 1.92%
Jul-97 954.31 70.69 7.81% 11.87%
Aug-97 899.47 66.09 -5.75% -6.50%
Sep-97 947.28 66.16 5.32% 0.09%
Oct-97 914.62 65 -3.45% -1.75%
Nov-97 955.4 70.75 4.46% 8.85%
Dec-97 970.43 64.63 1.57% -8.66%
Jan-98 980.28 74.59 1.02% 15.43%
Feb-98 1049.34 84.75 7.04% 13.62%
Mar-98 1101.75 89.5 4.99% 5.60%
Apr-98 1111.75 90.13 0.91% 0.70%
May-98 1090.82 84.81 -1.88% -5.89%
Jun-98 1133.84 108.38 3.94% 27.78%
Jul-98 1120.67 109.94 -1.16% 1.44%
Aug-98 1081.24 110.63 -3.52% 0.62%