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

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?

HISTORICAL RATES OF RETURN Year NYSE Stock X (26.5%) 37.2 1 (14.0%) 23.0 23.8 17.5 4 (7.2) 2.0 S.1 6.6 20.5 19.4 30.6 18

HISTORICAL RATES OF RETURN Year NYSE Stock X (26.5%) 37.2 1 (14.0%) 23.0 23.8 17.5 4 (7.2) 2.0 S.1 6.6 20.5 19.4 30.6 18.2

Step by Step Solution

★★★★★

3.53 Rating (174 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

a A plot of the approximate regression line is shown in the following figure Using Excel the regression equation estimates are Beta 056 Intercept 0037 ... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Document Format (1 attachment)

9-B-F-F-M (89).docx

120 KBs Word File

Students Have Also Explored These Related Finance Questions!

You are provided with annual rates of return for a portfolio and relevant benchmark index for the years 2008 to 2012. Calculate the tracking error for the portfolio. Year 2008 2009 2010 2011 2012...

What are the internal rates of return for the following projects? a. An initial outlay of $10,000 resulting in a single cash inflow of $17,182 in 8 years b. An initial outlay of $10,000 resulting in...

What are the expected rates of return for Stocks X andY? Bear Market Normal Market Bull Market Probability Stock X Stock Y 0.2 20% 15% 0.5 18% 20% 0.3 50% 10%

You are given the following set of data: a. Use a spreadsheet (or a calculator with a linear regression function) to determine Stock X 's beta coefficient. Do not round intermeciate calculations....

risk free rate?? Den spreadsheet a. Use a spreadsheet (or a calculator with a linear regression function) to determine Stock X's beta coefficient. Do not round intermediate calcu Round your answer to...

You are given the following set of data: Year 1 NM & S7 2 3 4 5 6 HISTORICAL RATES OF RETURN Stock X NYSE - 26.5% 37.2 23.8 - 7.2 6.6 20.5 30.6 Beta = - 18.0% 19.0 18.0 2.0 8.4 19.0 19.9 The data has...

Characteristic Line and Security Market Line You are given the following set of data: Year Historical Rates of Return NYSE Stock X -26.5% -11.0% 37.2 2.0 23.8 12.5 -7.2 6.6 11.7 20.5 17.6 30.6 17.0...

GUULLITSLIH U JULUI MUINUL II You are given the following set of data: Year 1 2 3 Historical Rates of Return NYSE Stock X -26.5% -20.0% 37.2 23.0 23.8 15.0 -7.2 4.0 6.6 8.7 16.1 30.6 17.0 4 5 6 20.5...

You are given the following set of data: HISTORICAL RATES OF RETURN Year NYSE Stock X 1 - 26.5% - 25.0% 2 37.2 24.0 3 23.8 10.5 4 - 7.2 4.0 5 6.6 8.1 6 20.5 17.1 7 30.6 17.2 Use a spreadsheet (or a...

Characteristic Line and Security Market Line You are given the following set of data: Historical Rates of Return Year NYSE Stock X 1 -26.5% -15.0% 37.2 2.0 2 3 23.8 12.5 4 -7.2 2.0 5 6.6 10.2 6 20.5...

A negative relationship is observed between women's labor force participation and fertility. Is higher labor force participation the cause of the lower birthrate, or vice versa? Discuss.

A bicycle with tires 68cm in diameter travels 8.0km. How many revolutions do the wheels make?

Under what conditions might an adjustable-rate mortgage be appropriate?

Use truth to determine whether the following symbolized statements are autologous, self-contradictory, or contingent. [(Z X) (X v Z)]

2. A block is projected up a frictionless inclined plane with initial speed vo-3.50 m/s. The angle of incline is 0=32.0. (a) How far up the plane does the block go? (b) How long does it take to get...

4. A soccer player kicks a soccer ball of mass 0.45 kg that is initially at rest. The foot of the player is in contact with the ball for 3.0x10 s, and the force of the kick is given by...

1. A loaded penguin sled weighing 80 N rests on a plane inclined at angle 0=20.0 to the horizontal (see Figure). Between the sled and the plane, the coefficient of static friction is 0.25, and the...

Evaluate the integral. x-9 (x + 5)(x - 2) -dx

Corporate bonds issued by Johnson Corporation currently yield 8%. Municipal bonds of equal risk currently yield 6%. At what tax rate would an investor be indifferent between these two bonds?

Kendall Corners Inc. recently reported net income of $3.1 million and depreciation of $500,000. What was its net cash flow? Assume it had no amortization expense.

The Bookbinder Company has made $150,000 before taxes during each of the last 15 years, and it expects to make $150,000 a year before taxes in the future. However, in 2010 the firm incurred a loss of...

Financial ratio analysis is conducted by managers, equity investors, long-term creditors, and short-term creditors. What is the primary emphasis of each of these groups in evaluating ratios?

Over the past year, M. D. Ryngaert & Co. has realized an increase in its current ratio and a drop in its total assets turnover ratio. However, the companys sales, quick ratio, and fixed assets...

Balance Sheet Current assets Cash 1,010,000 Acc receivable not given Inventories 1,150,000 Fixed assets 4,100,000 TOTAL ASSETS 7, 200,000 Current liabilities Acc payable not given Long-term debt...