6-14A. (Expected return, standard deviation, and capital asset pricing model) Following you will find the end-of-month prices, both for the Market Index and for Mathews, Inc. common stock.

a. Using the following data, calculate the holding-period returns for each month from August 2002 to July 2003.

b. Calculate the average monthly return and the standard deviation of these returns both for the Market and Mathews.

c. Develop a graph that shows the relationship between the Mathews stock returns and the Market Index. (Show the Mathews returns on the vertical axis and the Market Index returns on the horizontal, as done in Figure 6-8.)

d. From your graph, describe the nature of the relationship between Mathews stock returns " and the returns for the Market Index.

Transcribed Image Text:

PRICES MONTH AND YEAR MARKET MATHEWS CORP. 2002 July $1,328.72 $34.50 August 1,320.41 41.09 September 1,282.71 37.16 October 1,362.93 38.72 November 1,388.91 38.34 December 1,469.25 41.16 2003 January 1,394.46 49.47 February 1,366.42 56.50 March 1,498.58 65.97 April 1,452.43 63.41 May 1,420.60 62.34 June 1,454.60 66.84 July 1,430.83 66.75