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Characteristic Line and Security Market Line You are given the following set of data: HISTORICAL RATES...

Characteristic Line and Security Market Line

You are given the following set of data:

HISTORICAL RATES OF RETURN
Year      NYSE         Stock X
1 - 26.5% - 17.0%
2 37.2    16.0   
3 23.8    14.0   
4 - 7.2    5.0   
5 6.6    9.9   
6 20.5    19.4   
7 30.6    17.9   
  1. Use a spreadsheet (or a calculator with a linear regression function) to determine Stock X's beta coefficient. Round your answer to two decimal places.
    Beta =
  2. Determine the arithmetic average rates of return for Stock X and the NYSE over the period given. Calculate the standard deviations of returns for both Stock X and the NYSE. Round your answers to two decimal places.
       Stock X            NYSE        
    Average return, % %
    Standard deviation, σ % %

  3. Assume that the situation during Years 1 to 7 is expected to prevail in the future and both σx and bx in the future will equal their past values). Also, assume that Stock X is in equilibrium - that is, it plots on the Security Market Line. What is the risk-free rate? Round your answer to two decimal places.
    %

Solutions

Expert Solution

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -

jeff jeffy answered 4 weeks ago
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