Given the following results, indicate what will happen to the beta for Sophie Fashion Co.,

relative to the market proxy, compared to the beta relative to the true market portfolio:

YEARLY RATES OF RETURN

Year Sophie Fashion (%) Market Proxy (%) True Market (%)

1 10 8 6

2 20 14 11

3 14 10 7

4 20 18 12

5 15 12 10

Discuss the reason for the differences in the measured betas for Sophie Fashion Co. Does

the suggested relationship appear reasonable? Why or why not?