6.(CAPM and expected returns)

a.Given the following holding-period returns,

Month	Zemin Corp.		Market
1	7	%	3	%
2	2		1
3	0		1
4	2		3
5	7		4
6	2		3

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

b.If Zemin's beta is 1.17 and the risk-free rate is 9 percent, what would be an expected return for an investor owning Zemin? (Note: Because the preceding returns are based on monthly data, you will need to annualize the returns to make them comparable with the risk-free rate. For simplicity, you can convert from monthly to yearly returns by multiplying the average monthly returns by 12.)

c.How does Zemin's historical average return compare with the return you believe you should expect based on the capital asset pricing model and the firm's systematic risk?

a.Given the holding-period returns shown in the table, the average monthly return for the Zemin Corporation is

___%(Round to two decimal places.)

Part 2

The standard deviation for the Zemin 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 Zemin's beta is 1.17 and the risk-free rate is 9 percent, the expected return for an investor owning Zemin is

____%.(Round to two decimal places.)

Part 6

The average annual historical return for Zemin is

___%. (Round to two decimal places.)

Part 7

c.How does Zemin's historical average return compare with the return you believe you should expect based on the capital asset pricing model and the firm's systematic risk?(Select correct answer)

Zemin's historical average return is greater than/less than the return based on the capital asset pricing model and the firm's systematic risk.