Evaluation risk and return Bartman Industriess and Reynolds Inc.s stock prices and dividends, along with the Winslow 5000 Index, are shown here for the period 2009-2014. The Winslow 5000 data are adjusted to include dividends.

	Bartman Industries			Reynolds Inc.			Winslow 5000
Year	Stock Price	Dividend		Stock Price	Dividend		Includes Dividends
2014	$17.25	$1.15		$48.75	$3.00		$11,663.98
2013	14.75	1.06		52.30	2.90		8,785.70
2012	16.50	1.00		48.75	2.75		8,679.98
2011	10.75	0.95		57.25	2.50		6,434.03
2010	11.37	0.90		60.00	2.25		5,602.28
2009	7.62	0.85		55.75	2.00		4,705.97

Use the data to calculate annual rates of return for Bartman, Reynolds, and the Winslow 5000 Index. Then calculate each entitys average return over the 5-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 2009 because you do not have 2008 data)

Calculate the standard deviations of the returns for Bartman, Reynolds, and the Winslow 5000. (Hint: Use the ample standard deviation formulate, Equation 8.2a in this chapter, which corresponds to the STDEV function Excel.)

Calculate the coefficients of variation for Bartman, Reynolds, and the Winslow 5000.

Construct a scatter diagram that shows Bartmans and Reynolds returns on the vertical axis and the Winslow 5000 Indexs returns on the horizontal axis.

Estimate Bartmans and Reynolds betas by running regressions of their returns against the indexs returns. (Hint: Refer to Web Appendix8A.) Are these betas consistent with your graph?

Assume that the risk-free rate on long-term Treasury bonds is 6.04%. Assume also that the average annual return on the Winslow 5000 is not a good estimate of the markets required return it is too high. So use 11% as the expected return on the market. Use the SML equation to calculate the two companies required returns.

If you formed a portfolio that consisted of 50% Bartman and 50% Reynolds, what would the portfolios beta and required return be?

Suppose an investor wants to include Bartman Industries stock in his portfolio. Stocks A, B, and C are currently in the portfolio; and their betas are 0.769, 0.985, and 1.423, respectively. Calculate the new portfolios required return if it consists of 25% of Bartman, 15% of Stock A, 40% of Stock B, and 20% of Stock C.