Question
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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