CABIO 75 Question two: (4 marks) You have run a regression of returns of Devonex, a machine tool manufacturer, against the S&P500 Index using monthly returns over the last 5 years and arrived at the following regression: ReturnDevonex=-0.20% +1.50 Returnsar soo a) The stock had a Jensen's alpha of +0.10% (on a monthly basis) over this period i. Has the stock beaten the market? Explain (1 mark) ii. Estimate the monthly risk-free rate during the last 5 years. (1 mark) b) If the standard error of the regression beta is 0.4. Estimate the range for the regression beta at a 95% confidence interval? (1 mark) c) If the market risk premium is 6.5%, the tax rate is 40% Estimate the cost of equity for Devonex (1 mark) S CABIO 75 Question two: (4 marks) You have run a regression of returns of Devonex, a machine tool manufacturer, against the S&P500 Index using monthly returns over the last 5 years and arrived at the following regression: ReturnDevonex=-0.20% +1.50 Returnsar soo a) The stock had a Jensen's alpha of +0.10% (on a monthly basis) over this period i. Has the stock beaten the market? Explain (1 mark) ii. Estimate the monthly risk-free rate during the last 5 years. (1 mark) b) If the standard error of the regression beta is 0.4. Estimate the range for the regression beta at a 95% confidence interval? (1 mark) c) If the market risk premium is 6.5%, the tax rate is 40% Estimate the cost of equity for Devonex (1 mark) S