# Question: Based on five years of monthly data you derive the

Based on five years of monthly data, you derive the following information for the companies listed:

a. Compute the beta coefficient for each stock.

b. Assuming a risk-free rate of 8 percent and an expected return for the market portfolio of 15 percent, compute the expected (required) return for all the stocks and plot them on the SML.

c. Plot the following estimated returns for the next year on the SML and indicate which stocks are undervalued or overvalued.

• Intel—20 percent

• Ford—15 percent

• Anheuser Busch—19 percent

• Merck—10percent

a. Compute the beta coefficient for each stock.

b. Assuming a risk-free rate of 8 percent and an expected return for the market portfolio of 15 percent, compute the expected (required) return for all the stocks and plot them on the SML.

c. Plot the following estimated returns for the next year on the SML and indicate which stocks are undervalued or overvalued.

• Intel—20 percent

• Ford—15 percent

• Anheuser Busch—19 percent

• Merck—10percent

**View Solution:**## Answer to relevant Questions

The following are the historic returns for the Chelle Computer Company:Based on this information, compute the following:a. The correlation coefficient between Chelle Computer and the General Index.b. The standard deviation ...Both the capital asset pricing model and the arbitrage pricing theory rely on the proposition that a no-risk, no-wealth investment should earn, on average, no return. Explain why this should be the case, being sure to ...How can multifactor models be used to help investors understand the relative risk exposures in their portfolios relative to a benchmark portfolio? Support your answer with examples using both macroeconomic and microeconomic ...a. Compute the average monthly return and monthly standard return deviation for each portfolio and all three risk factors. Also state these values on an annualized basis.b. Based on the return and standard deviation ...Give an example of how a cash flow ratio might differ from a proportion of debt ratio.Assuming these ratios differ for a firm (e.g., the cash flow ratios indicate high financial risk, while the proportion of debt ratio ...Post your question