chapter 3Excel Online Structured Activity: 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%		- 23.0%
2		37.2		21.0
3		23.8		13.5
4		- 7.2		4.0
5		6.6		7.2
6		20.5		18.0
7		30.6		19.0

The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below.

Open spreadsheet

1. Use a spreadsheet (or a calculator with a linear regression function) to determine Stock X's beta coefficient. Do not round intermediate calculations. Round your answer to two decimal places.

   Beta = fill in the blank 2

2. 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. Do not round intermediate calculations. Round your answers to two decimal places.

   		NYSE		Stock X
   Average return,		fill in the blank 3 %		fill in the blank 4 %
   Standard deviation,		fill in the blank 5 %		fill in the blank 6 %

3. Assume that the situation during Years 1 to 7 is expected to prevail in the future (i.e., , , and both _x and b_x in the future will equal their past values). Also assume that Stock X is in equilibrium - that is, it plots on the Security Market Line. What is the risk-free rate? Do not round intermediate calculations. Round your answer to two decimal places.

   fill in the blank 7 %