P8.8 Fama-Frencb Risk Premiums for Four Comparable Companies in Problem 8.6 IRP 8MB l-IIIL MHP Premiums 0.0804 0.0378 0.0470 0.0820 Three- ThreeFactor Model Sensitivities Factor CAPM B CAPM Risk Risk Bum Bsue Btu. Premium Premium Comparable Company #1 0.820 0.340 0.900 12.3% 0.970 11.9% Comparable Company #2 1.250 0.090 0.090 14.6% 1.310 16.1% Comparable Company #3 1.320 0.200 1 .260 15.8% 1.420 17.4% Compmable Company #4 1.650 0.670 0.320 17.3% 1.500 19.4% P8.6 Bloomberg, Precision, and Vasieck Adjusted Betas Standard Bloomberg Beta Error of 1! Standard Adjusted Precision Weighted Beta: Estimate Beta Error Beta Comparable Company #1 0.970 0.500 2.00 0.9799 Comparable Company #2 1 .310 0.550 1 .82 1 .2077 Comparable Company #3 1.420 0.710 1.41 1.281 Comparable Company #4 1.580 0.700 1.43 1.3886 Company Being Valued 1.110 0.600 1 .85 Comparable Company Average Beta 1.320 1.214 Average Beta of the Comps and Company Being Valuer 1.278 Precision Weighted Comparable Company Beta 1.250 Sum of 1! Standard Error 8.51 Vasioek Adjusted Beta - Company Being Valued 1.2944 Variance of the Comparable Company Betas 0.0500 Standard Error Squared - Company Being Valued 0.3600 Weight for Company Being Valued 0.1221 Weight for Comparable Company Portfolio Beta 0.8779 We use Equations 8.9 and 8.10 respectively to compute the precision-weighted beta and the Vasicek adjusted betas. In this case, the average beta of the ve companies, the precision- weighted beta and the Vasicek adjusted beta are all quite similar, with a range from 1.25 to 1.29. m