1. Go to finance.yahoo.com and download the ending monthly stock prices for Colgate-Palmolive for the last 60 months. Use the adjusted closing price, which adjusts for dividend payments and stock splits. Next, download the ending value of the S&P 500 Index over the same period. For the historical risk-free rate, go to the St. Louis Federal Reserve website (www.stlouisfed.org) and find the three-month Treasury bill secondary market rate. Download this file. What are the monthly returns, average monthly returns, and standard deviations for Colgate-Palmolive stock, the three-month Treasury bill, and the S&P 500 for this period?

2. Beta is often estimated by linear regression. A model commonly used is called the market model, which is:

   R_t R_ft = _i + _i[R_Mt R_ft] + _t

   In this regression, R_t is the return on the stock and R_ft is the risk-free rate for the same period. R_Mt is the return on a stock market index, such as the S&P 500 index; _i is the regression intercept; _i is the slope (and the stocks estimated beta); and _t represents the residuals for the regression. What do you think is the motivation for this particular regression? The intercept, , is often called Jensens alpha. What does it measure? If an asset has a positive Jensens alpha, where would it plot with respect to the SML? What is the financial interpretation of the residuals in the regression?