13. The North Bend Bait Company is contemplating an investment to get it into the production and sale of spinning rods and reels. Heretofore, it has produced only artificial baits. The financial manager of the company, Bruno Litzenberger, feels that the only way to analyze the merit of the project is with a capital asset pricing model approach. Fortunately, Super Splash Spinning Corporation, a publicly held company, produces only spinning fishing equipment.

Litzenberger feels it appropriate to use this company as a benchmark for measuring risk. Neither North Bend Bait nor Super Splash employs any leverage. The actual returns to investors in Super Splash over the last 10 years were those shown in the following table. Also shown are 1-year returns for Standard & Poor's 500-Stock Index and the risk-free rate.

Annual Return Year End Super Splash Market Index Risk-Free Rate Average return