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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)	i		riM
Intel	0.22	11.00	%	0.61
Ford	0.11	15.70		0.39
Anheuser Busch	0.19	8.50		0.51
Merck	0.05	12.00		0.51
S&P 500	0.00	5.00		1.00

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

   Intel:

   Ford:

   Anheuser Busch:

   Merck:

2. Assuming a risk-free rate of 7 percent and an expected return for the market portfolio of 13 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: %

3. Choose the correct SML graph for the following estimated returns for the next year.
   • Intel 20 percent
   • Ford 13 percent
   • Anheuser Busch 17 percent
   • Merck 9 percent

     A.
     B.
     C.
     D.

     Which stocks are undervalued or overvalued?

     Company	Evaluation
     Intel	-Select-UndervaluedOvervaluedItem 10
     Ford	-Select-UndervaluedOvervaluedItem 11
     Anheuser Busch	-Select-UndervaluedOvervaluedItem 12
     Merck	-Select-UndervaluedOvervaluedItem 13