Question: 7. For this exercise you would need to use the spreadsheet ps2.xls posted on the Blackboard. The file contains information about monthly returns of twelve

7. For this exercise you would need to use the spreadsheet ps2.xls posted on the Blackboard. The file contains information about monthly returns of twelve stocks, AMGN, AMZN, STX, MSFT, BA, WMT, PFE, ABB, YHOO, AAPL, VZ, GOOG, as well as the value-weighted market index excess return (MKT-RF), and the risk-free rate (RF). The sample period begins on January 2004 and ends December 2012. The spreadsheet is set in a way that you would only need to change the values in cells H122 and T123 in order to control the portfolio weights and the stock/portfolio chosen for the regression calculation. (b) Graph a scattered plot of the Security Market Line (SML), i.e. each point on this plot is a pair of the average returns of a stock and its Beta. Calculate the risk premium of the market index as the slope of the regression line in this graph. Is the premium statistically significant? Are these results consistent with the CAPM?

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