# a. Use a spreadsheet (or a calculator with a linear regression function) to determine Stock X's beta

## Question:

a. Use a spreadsheet (or a calculator with a linear regression function) to determine Stock X's beta coefficient.

b. Determine the arithmetic average rates of return for Stock X and the NYSE over the period given. Calculate the standard deviations of returns for both Stock X and the NYSE.

c. Assuming (1) that the situation during Years 1 to 7 is expected to hold true in the future (that is, rX = rX rM = rM; and both oX and bX in the future will equal their past values), and (2) that Stock X is in equilibrium (that is, it plots on the Security Market Line), what is the risk-free rate?

d. Plot the Security Market Line.

e. Suppose you hold a large, well-diversified portfolio and are considering adding to the portfolio either Stock X or another stock, Stock Y, that has the same beta as Stock X but a higher standard deviation of returns. Stocks X and Y have the same expected returns; that is rX = rY = 10.6%. Which stock should you choose?

Stocks or shares are generally equity instruments that provide the largest source of raising funds in any public or private listed company's. The instruments are issued on a stock exchange from where a large number of general public who are willing... Portfolio

A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...

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**Related Book For**

## Financial management theory and practice

**ISBN:** 978-0324422696

12th Edition

**Authors:** Eugene F. Brigham and Michael C. Ehrhardt