Question
A firm wishes to estimate graphically the betas for two assets, A and B. It has gathered the return data shown in the following table
A firm wishes to estimate graphically the betas for two assets, A and B. It has gathered the return data shown in the following table for the market portfolio and for both assets over the last 10 years, 2009-2018:
Year | Annual return | ||||||
Market portfolio | Asset A | Asset B | |||||
2009 | 6% | 11% | 16% | ||||
2010 | 2% | 8% | 11% | ||||
2011 | 13% | 4% | 10% | ||||
2012 | 4% | 3% | 3% | ||||
2013 | 8% | 0% | 3% | ||||
2014 | 16% | 19% | 30% | ||||
2015 | 10% | 14% | 22% | ||||
2016 | 15% | 18% | 29% | ||||
2017 | 8% | 12% | 19% | ||||
2018 | 13% | 17 |
.
a.Which of the following graphs represents the graphical derivation of beta for assets A and B?
b.Use the characteristic lines from part a to estimate the betas for assets A and B.
c.Use the betas found in part b to comment on the relative risks of assets A and B.
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