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Due on Feb . 2 5 Chapter: 6 See the Example for the estimation of standard deviation and beta. a . Use the data given

Due on Feb.25
Chapter: 6
See the Example for the estimation of standard deviation and beta.
a. Use the data given to calculate annual returns for Goodman, Landry, and the Market Index, and then calculate average returns over the five-year period. (Hint: Remember, returns are calculated by subtracting the beginning price from the ending price to get the capital gain or loss, adding the dividend to the capital gain or loss, and dividing the result by the beginning price. Assume that dividends are already included in the index. Also, you cannot calculate the rate of return for 2010 because you do not have 2009 data.)
Data as given in the problem are shown below:
Goodman Industries Landry Incorporated Market Index
Year Stock Price Dividend Stock Price Dividend Includes Divs.
2016 $25.88 $1.73 $73.13 $4.5017,495.97
2015 $22.13 $1.59 $78.45 $4.3513,178.55
2014 $24.75 $1.50 $73.13 $4.1313,019.97
2013 $16.13 $1.43 $85.88 $3.759,651.05
2012 $17.06 $1.35 $90.00 $3.388,403.42
2011 $11.44 $1.28 $83.63 $3.007,058.96
We now calculate the rates of return for the two companies and the index:
DON'T FORGET TO ADD DIVIDENDS WHEN CALCULATING A COMPANY'S RETURN.
Goodman Landry Index
2016
201524.1%
2014
2013
2012
Average
b. Calculate the standard deviation of the returns for Goodman, Landry, and the Market Index. (Hint: Use the sample standard deviation formula given in the chapter, which corresponds to the STDEV function in Excel.)
Use the function wizard to calculate the standard deviations.
Goodman Landry Index
Standard deviation of returns
c. Estimate Goodmans and Landrys betas as the slopes of regression lines with stock returns on the vertical axis (y-axis) and market return on the horizontal axis (x-axis).(Hint: use Excels SLOPE function)
Goodman's beta =
Landry' beta =
d. The risk-free rate on long-term Treasury bonds is 6.04%. Assume that the market risk premium is 5%. What is the expected return on the market? Now use the CAPM model to calculate the two companies' required returns.
Market risk premium (RPM)=5.000%
Risk-free rate =6.040%
Required return on the market? =
Goodman:
Required return =
Landry:
Required return =
e. If you formed a portfolio that consisted of 50% Goodman stock and 50% Landry stock, what would be its beta and its required return?
Portfolio beta =`
Expected return=
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