18)

An analyst is interested in estimating the required return on stock Great Graphic Graffiti, Inc (GGG). The analyst can observe the risk-free rate of 2.75% and will use the historical market premium of 9.5%. Additionally, the analyst estimates the following statistics based on 5 years of monthly returns of GGG and the market portfolio (mkt):

• ()=2=0.133225var(GGG)=GGG2=0.133225
• ()=2=0.034225var(mkt)=mkt2=0.034225
• (,)=,=0.05004953covar(GGG,mkt)=GGG,mkt=0.05004953
• (,)=,=0.7412corr(GGG,mkt)=GGG,mkt=0.7412

(A) What is GGG's estimated beta coefficient?

(B) What is the CAPM expected return of GGG?

(C) How would this information be of use to a firm attempting to calculate the NPV of a project?