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Graphical derivation of beta A firm wishes to extimate graphically the betas for two assets, A and B. It has gathered the return data shown

Graphical derivation of beta

A firm wishes to extimate graphically the betas for two assets, A and B. It has gathered the return data shown in the following tables for the market portfolio and for both assets over the last 10 years, 2006-2015.

Year Market Portfolio Asset A Asset B
2006 6% 11% 16%
2007 2 8 11
2008 -13 -4 -10
2009 -4 3 3
2010 -8 0 -3
2011 16 19 20
2012 10 14 22
2013 15 18 29
2014 8 12 19
2015 13 17 26

a) ON a set of "market return (x axis) - asset return ( y axis)" axex, use the data given to draw the characteristic line for asset A and for asset B.

b) Use the characteristic line from part a to estimate the betas for assets A and B.

c) Use the betas found in part b to comment on the relative risks of assets A and B.

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