Question 7.07

Choose the correct security market line graph for each of the following conditions: a. (1) RFR = 0.06; RM(proxy) = 0.13 (2) R = 0.04; RM(true) = 0.14 The correct graph is Select A Security market Line 10.16 10.16 10.14 10.12 10.1 10.08 0.06 10.02 Beta SML SML tre B. Security market Line 10.18 10.16 10.14 10.12 10.1 10.08 les 10.04 10.02 Beta Security market Line 10.16 10.16 10.14 10.12 10.1 10.08 10.06 0.04 10.02 2 Beta SML SML Security market Line D. 10.18 0.16 10.14 10.12 10.1 10.08 0.06 10.04 0.02 NE Beta SML proxy - SML true b. Rader Tire has the following results for the last six periods. Calculate and compare the betas using each index. Do not round intermediate calculations. Round your answers to three decimal places. Period Rader Tire (%) 26 14 RATES OF RETURN Proxy Specific Index (%) True General Index (%) 15 12 14 14 3 -14 -8 15 -8 19 4 16 5 22 24 28 0 -5 -8 Busing proxy: Busing true! c. If the current period return for the market is 13 percent and for Rader Tire it is 10 percent, are superior results being obtained for either index beta? Do not round intermediate calculations. Round your answers to two decimal places. E(RR)using proxy E(RR)using true! Rader's performance would be -Select