(Using the CAPM to find expected returns)

a. Given the following holding-period returns, compute the average returns and the standard deviations for Coria Plc. and for the market portfolio.

Quarter Coria Plc. Market 1 5% 3%

2 3 1 3 –2 0 4 4 2 5 1 4

b. If Coria’s beta is 1.8 and the risk-free rate is 3 percent, what return would be expected by an investor as per the CAPM? (Note: Because the preceding returns are based on quarterly data, you will need to annualize the returns to make them comparable to the risk-free rate. For simplicity, you can convert from quarterly returns to yearly returns by multiplying the average quarterly returns by 4.)

c. How does Coria’s historical average return compare with the expected return based on the CAPM and the firm’s systematic risk?