3.21 The capital asset pricing model (CAPM) is described in Exercise 2.16. Use all available observations in the data file capm5 for this exercise. a. Construct 95% interval estimates of Exxon-Mobil's and Microsoft's "beta." Assume that you are a stockbroker. Explain these results to an investor who has come to you for advice. b. Test at the 5% level of significance the hypothesis that Ford's "beta" value is one against the alter- native that it is not equal to one. What is the economic interpretation of a beta equal to one? Repeat the test and state your conclusions for General Electric's stock and Exxon-Mobil's stock. Clearly state the test statistic used and the rejection region for each test, and compute the p-value. c. Test at the 5% level of significance the null hypothesis that Exxon-Mobil's "beta" value is greater than or equal to one against the alternative that it is less than one. Clearly state the test statistic used and the rejection region for each test, and compute the p-value. What is the economic interpretation of a beta less than one? d. Test at the 5% level of significance the null hypothesis that Microsoft's "beta" value is less than or equal to one against the alternative that it is greater than one. Clearly state the test statistic used and the rejection region for each test, and compute the p-value. What is the economic interpretation of a beta more than one? e. Test at the 5% significance level, the null hypothesis that the intercept term in the CAPM model for Ford's stock is zero, against the alternative that it is not. What do you conclude? Repeat the test and state your conclusions for General Electric's stock and Exxon-Mobil's stock. Clearly state the test statistic used and the rejection region for each test, and compute the p-value. 3.21 The capital asset pricing model (CAPM) is described in Exercise 2.16. Use all available observations in the data file capm5 for this exercise. a. Construct 95% interval estimates of Exxon-Mobil's and Microsoft's "beta." Assume that you are a stockbroker. Explain these results to an investor who has come to you for advice. b. Test at the 5% level of significance the hypothesis that Ford's "beta" value is one against the alter- native that it is not equal to one. What is the economic interpretation of a beta equal to one? Repeat the test and state your conclusions for General Electric's stock and Exxon-Mobil's stock. Clearly state the test statistic used and the rejection region for each test, and compute the p-value. c. Test at the 5% level of significance the null hypothesis that Exxon-Mobil's "beta" value is greater than or equal to one against the alternative that it is less than one. Clearly state the test statistic used and the rejection region for each test, and compute the p-value. What is the economic interpretation of a beta less than one? d. Test at the 5% level of significance the null hypothesis that Microsoft's "beta" value is less than or equal to one against the alternative that it is greater than one. Clearly state the test statistic used and the rejection region for each test, and compute the p-value. What is the economic interpretation of a beta more than one? e. Test at the 5% significance level, the null hypothesis that the intercept term in the CAPM model for Ford's stock is zero, against the alternative that it is not. What do you conclude? Repeat the test and state your conclusions for General Electric's stock and Exxon-Mobil's stock. Clearly state the test statistic used and the rejection region for each test, and compute the p-value
