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Problem $7-04$

Based on five years of monthly data, you derive the following information for the companies listed:

Company ai $($Intercept$)\backslash$sigma i riM

Intel $0\mathrm{.}2211\mathrm{.}30\%0\mathrm{.}60$

Ford $0\mathrm{.}1013\mathrm{.}800\mathrm{.}28$

Anheuser Busch $0\mathrm{.}178\mathrm{.}300\mathrm{.}66$

Merck $0\mathrm{.}059\mathrm{.}500\mathrm{.}70$

S&P $5000\mathrm{.}004\mathrm{.}001\mathrm{.}00$

Compute the beta coefficient for each stock. Do not round intermediate calculations. Round your answers to three decimal places.

Intel:

Ford:

Anheuser Busch:

Merck:

Assuming a risk$-$free rate of $9$ percent and an expected return for the market portfolio of $14$ percent, compute the expected $($required$)$ return for all the stocks. Do not round intermediate calculations. Round your answers to two decimal places.

Intel:

$\%$

Ford:

$\%$

Anheuser Busch:

$\%$

Merck:

$\%$

Choose the correct SML graph for the following estimated returns for the next year.

Intel $20$ percent

Ford $16$ percent

Anheuser Busch $17$ percent

Merck $11$ percent

The correct graph is

$-$Select$-$

$.$

A$.$

B$.$

C$.$

D$.$

Which stocks are undervalued or overvalued?

Company Evaluation

Intel

$-$Select$-$

Ford

$-$Select$-$

Anheuser Busch

$-$Select$-$

Merck

$-$Select$-$