Calculate the correction coefficient between Blandy and the market. Use this and the previously calculated (or given) standard deviations of Blandy and the market to estimate Blandys beta. Does Blandy contribute more or less risk to a well-diversified portfolio than does the average stock? Use the SML to estimate Blandys required return.

Show how to estimate beta using regression analysis.

MINI CASE STIID Assume that you recently graduated and landed a job as a financial planner with Cicero Services, an invest. ment advisory company. Your first client recently inherited some assets and has asked you to evaluate them. The client presently owns a bond portfolio with E1 million invested in zero coupon treasury bonds that mature in 10 years. The client also has 2 million invested in the stock of Blandy, a company that produces meat and potato frozen dinners. Blandy's slogan is "Solid food for shaky times." Unfortunately, Congress and the president are engaged in an acrimonious dispute over the budget and the debt ceiling. The outcome of the dispute, which will not be resolved until the end of the year, will have a big impact on interest rates one year from now. Your first task is to determine the risk of the client's bond portfolio. After consulting with the economists at your firm, you have specified five possible scenarios for the resolution of the dispute at the end of the year. For each scenario, you have estimated the probability of the scenario occurring and the impact on interest rates and bond prices if the scenario occurs. Given this information, you have calculated the rate of return on 10-year zero coupon for each scenario. The probabilities and returns are shown below: You have also gathered historical returns for the past 10 years for Blandy and Gourmange (a producer of gourmet speciality foods), and the stock market