GUULLITSLIH U JULUI MUINUL II You are given the following set of data: Year 1 2 3 Historical Rates of Return NYSE Stock X -26.5% -20.0% 37.2 23.0 23.8 15.0 -7.2 4.0 6.6 8.7 16.1 30.6 17.0 4 5 6 20.5 7 a. Use a spreadsheet (or a calculator with a linear regression function) to determine Stock X's beta coefficient. Do not round intermediate calculations. Round your answer to two decimal places. b. Determine the arithmetic average rates of return for Stock X and the NYSE over the period given. Calculate the standard deviations of returns for both Stock X and the NYSE. Do not round intermediate calculations. Round your answers to two decimal places. Stock X NYSE Average return, FAvg % % Standard deviation, o % % C. Assume that the situation during Years 1 to 7 is expected to prevail in the future (i.e., fx = 7x, Average, M = iM, Average, and both Ox and bx in the future will equal their past values). Also assume that Stock X is in equilibrium - that is, it plots on the Security Market Line. What is the risk-free rate? Do not round intermediate calculations. Round your answer to two decimal places. % d. Choose the correct graph of the Security Market Line. B (%) (%) 1 45 (%) 45 45 401 40 40+ 35 35 35 30 VV 25 30 25 20 20 157 101 30 25+ 20 15 101 157 10+ 5 5 5 -0.55 0.5 1 1.5 2 2.5 3 3.5 4 Beta -0.55 0.5 1 1.5 2 2.5 3 3.5 4 Beta -0.55 0.5 1 1.5 2 2.5 3 3.5 4 Beta D (%) 45 40 35 30 25 20 15 10 5 -0.5 0.5 1 1.5 2 2.5 3 3.5 4 Beta = = e. Suppose you hold a large, well-diversified portfolio and are considering adding to that portfolio either Stock X or another stock, Stock Y, which has the same beta as Stock X but a higher standard deviation of returns. Stocks X and Y have the same expected returns: fx = fy = 9.1%. Which stock should you choose? In theory, you should -Select- A as far as -Select- A GUULLITSLIH U JULUI MUINUL II You are given the following set of data: Year 1 2 3 Historical Rates of Return NYSE Stock X -26.5% -20.0% 37.2 23.0 23.8 15.0 -7.2 4.0 6.6 8.7 16.1 30.6 17.0 4 5 6 20.5 7 a. Use a spreadsheet (or a calculator with a linear regression function) to determine Stock X's beta coefficient. Do not round intermediate calculations. Round your answer to two decimal places. b. Determine the arithmetic average rates of return for Stock X and the NYSE over the period given. Calculate the standard deviations of returns for both Stock X and the NYSE. Do not round intermediate calculations. Round your answers to two decimal places. Stock X NYSE Average return, FAvg % % Standard deviation, o % % C. Assume that the situation during Years 1 to 7 is expected to prevail in the future (i.e., fx = 7x, Average, M = iM, Average, and both Ox and bx in the future will equal their past values). Also assume that Stock X is in equilibrium - that is, it plots on the Security Market Line. What is the risk-free rate? Do not round intermediate calculations. Round your answer to two decimal places. % d. Choose the correct graph of the Security Market Line. B (%) (%) 1 45 (%) 45 45 401 40 40+ 35 35 35 30 VV 25 30 25 20 20 157 101 30 25+ 20 15 101 157 10+ 5 5 5 -0.55 0.5 1 1.5 2 2.5 3 3.5 4 Beta -0.55 0.5 1 1.5 2 2.5 3 3.5 4 Beta -0.55 0.5 1 1.5 2 2.5 3 3.5 4 Beta D (%) 45 40 35 30 25 20 15 10 5 -0.5 0.5 1 1.5 2 2.5 3 3.5 4 Beta = = e. Suppose you hold a large, well-diversified portfolio and are considering adding to that portfolio either Stock X or another stock, Stock Y, which has the same beta as Stock X but a higher standard deviation of returns. Stocks X and Y have the same expected returns: fx = fy = 9.1%. Which stock should you choose? In theory, you should -Select- A as far as -Select- A