18. (CAPM and expected returns)

a.Given the following holding-period returns,

Month	Sugita Corp.		Market
1	2.2	%	1.8	%
2	0.8		3.0
3	0.0		3.0
4	0.0		0.0
5	7.0		6.0
6	7.0		2.0

compute the average returns and the standard deviations for the Sugita Corporation and for the market.

Part 1

a.Given the holding-period returns shown in the table, the average monthly return for the Sugita Corporation is ______%. (Round to three decimal places.)

Part 2

The standard deviation for the Sugita Corporation is

______% (Round to two decimal places.)

Part 3

Given the holding-period returns shown in the table, the average monthly return for the market is

_____%(Round to three decimal places.)

Part 4

The standard deviation for the market is

_____% (Round to two decimal places.)

Part 5

b.If Sugita's beta is 0.88 and the risk-free rate is 7 percent, the expected return for an investor owning Sugita is _____%. (Round to two decimal places.)

Part 6

The average annual historical return for Sugita is

_____% (Round to two decimal places.)

Part 7

c.How does Sugita's historical average return compare with the return you should expect based on the capital asset pricing model and the firm's systematic risk?(Select from the two) Sugita's historical average return is greater than/less than the return based on the capital asset pricing model and thefirm's systematic risk.