You are attempting to predict the return on Dog Heavy Equipment. You have gathered the following...

You are attempting to predict the return on Dog Heavy Equipment. You have gathered the following data on the firm’s returns, relevant Treasury rates (for a risk-free rate), and the S&P 1500 (which you plan to use as a market portfolio):

Year	Dog	Treasury	S & P 500
1	12%	2%	14%
2	7%	2%	8%
3	14%	1%	9%
4	8%	1%	12%
5	4%	1%	7%
6	12%	0%	9%
7	9%	0%	10%
8	1%	1%	12%
9	-10%	1%	15%
10	25%	2%	11%

(i) Assume you believe that CAPM is the correct pricing model. Estimate the abnor- mal return on this stock and its beta. Should you invest in this security?

(ii) Do Dog’s returns provide evidence for or against a weak form efficient market?

Expert Solution

jeff jeffy answered 8 months ago

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