Start with the partial model in the file Cb06 PI4 Bwild a Model wh con the trathook's Web site. The file contains hypothetical data for working this peoblem. Bartmun Induotries's and Reynolds Incorporated's stock prices and dividends, along with the Market Index, are shown below, Stock prices are reported for December 31 of each year, and dividends reflect those paid during the year. The market data are adjusted to include dividends. Chapter 6: Risk, Return, and the Capizal Asser Pricing Model 261 a. Use the data given to calculate annual returns for Bartman, Reynolds, and the Market Index, and then calculate average annual retums for the two stocks and the index. (Hint- Remember, returns are calculated by subtracting the beginning price from the ending price to get the capital gain or loss, adding the dividend to the capital gain or loss, and then dividing the result by the beginning price. Assume that dividends are already included in the index. Also, you cannot calculate the rate of return for 2005 because you do not have 2004 data.) b. Calculate the standard deviations of the returns for Barmman, Reynolds, and the Market Index. (Hiat: Use the sample standard deviation formula given in the chapter, which corresponds to the STDEV function in Eirrl) c. Now calculate the coefficients of sariation for Bartmun, Reynolds, and the Market Index. d. Construct a scatter diagram graph that shows Bartunan's returns on the vertical axis and the Market Index's returns on the horizontal awis. Construct a similar graph showing Reynold's stock returns on the vertical axis. e. Estimate Bartman's and Reynolds's betas as the slopes of regresion lines with stock retum on the vertical axis ( y-axis) and market return on the horizontal awis (x-xxis) (Hias: Use Euxis SLOPE function.) Are these betas consistene with your gryph? f. The risk-free rate on long-term Treasary bonds is 6.04%. Assume that the market risk premium is 5%. What is the required return on the market? Now use the SML. equation to calculate the two companies' required returns. g. If you formed a portfolio that consisted of 50% Bartman stock and 50% Reynolds stock, what would be its beta and its required return? h. Suppose an investor wants to include some Bartman Induseries stock in his portfolio. Stocks A,B, and C are currently in the portfolio, and their betas are 0.769, 0.985, and 1.423, respectively. Calculate the new portoolio's required return if it consists of 25% Bartman, 15% Stock A, 40% Stock B, and 20% Stock C