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1. The following information was generated using 1991 - 2000 data: Standard deviation of Charles Schwab 89 Standard deviation of Campbell Soup .26 Correlation coefficient
1. The following information was generated using 1991 - 2000 data: Standard deviation of Charles Schwab 89 Standard deviation of Campbell Soup .26 Correlation coefficient between Charles Schwab and the Market 54 Correlation coefficient between Campbell Soup and the Market 57 Mean return on the Market (5&P 500) 18 Variance of returns on the Market 023 Risk-free rate of return (T-Bills) 04 What is the beta coefficient of Charles Schwab? What is the beta coefficient of Campbell Soup? What is the beta coefficient of a portfolio consisting of 25 percent invested in Charles Schwab and 75 percent invested in Campbell Soup? d) According to the Capital Asset Pricing Model, how would you rank these stocks according to risk? e) According to the CAPM, compute the equilibrium rate of return for: 1. Charles Schwab 2. Campbell Soup 3. The portfolio in part (c) above. f) Plot the Security Market Line and indicate the positions of Charles Schwab, Campbell Soup and the portfolio in part (c) above. 2. Suppose that the relevant equilibrium model is the CAPM with unlimited borrowing and lending at a riskless rate of interest. Complete the blanks in the following table: Security Expected Return Standard Deviation Beta Residual Variance A 08 10 0 B .12 2 49 C 1 0 D 05 36
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