Question
According to the Capital Asset Pricing Model (CAPM), the risk associated with a capital asset (e.g. stock) is proportional to the slope 1 (or simply
According to the Capital Asset Pricing Model (CAPM), the risk associated with a capital asset (e.g. stock) is proportional to the slope 1 (or simply ) obtained by regressing the assets past returns with the corresponding returns of the average portfolio, called the market portfolio. In fact, the slope coefficient is commonly referred to as the BETA of an asset. The actual theory for CAPM, along with its exact definition and characteristics is left to the Finance course. The return of the market portfolio represents the return earned by the average investor. It is a weighted average of the returns from all the assets in the market. The larger the slope of an asset, the larger is the risk associated with that asset. A of 1.00 represents average risk. A Beta value greater than 1 represents an asset that is more risky than the market. Likewise, a Beta value less than 1 represents an asset that is less risky than the market. The market return is typically the return on the S & P 500 index.
Question: Test whether this stock is riskier than the market.
Market Stock Return (%) Return (%) 16.02 21.05 12.17 17.25 11.48 13.1 17.62 18.23 20.01 21.52 14 13.26 13.22 15.84 17.79 22.18 15.46 16.26 8.09 5.64 11.0 10.55 18.52 17.86 14.05 12.75 8.79 9.13 11.60 13.87
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