1. a. Please estimate and plot the SML that can be constructed using the data contained in SML_data.xls. The data file contains data on six individual stocks' excess returns for a period. It also contains excess return data for a market index (SP500) for the same period. Does the estimated SML indicate statistically significant risk return trade-off relationship? Explain. Please present the related regression table. [9 Marks]

b. What is the firm-specific risk exposure of AMR? Do the necessary estimation and make your conclusion. Please provide detailed explanation. Please present the related regression table. [5 Marks]

Obs AMR BS GE HR MO UK SP500

1 -0.3505 -0.1154 -0.4246 -0.2107 -0.0758 0.2331 -0.2647

2 0.7083 0.2472 0.3719 0.2227 0.0213 0.3569 0.3720

3 0.7329 0.3665 0.2550 0.5815 0.1276 0.0781 0.2384

4 -0.2034 -0.4271 -0.0490 -0.0938 0.0712 -0.2721 -0.0718

5 0.1663 -0.0452 -0.0573 0.2751 0.1372 -0.1346 0.0656

6 -0.2659 0.0158 0.0898 0.0793 0.0215 0.2254 0.1844

7 0.0124 0.4751 0.3350 -0.1894 0.2002 0.3657 0.3242

8 -0.0264 -0.2042 -0.0275 -0.7427 0.0913 0.0479 -0.0491

9 1.0642 -0.1493 0.6968 -0.2615 0.2243 0.0456 0.2141

10 0.1942 0.3680 0.3110 1.8682 0.2066 0.2640 0.2251