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Problem 7 - 0 7 Choose the correct security market line graph for each of the following conditions: ( 1 ) RFR = 0 .
Problem
Choose the correct security market line graph for each of the following conditions:
RFR ; RMproxy
Rz ; RMtrue
The correct graph is
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A
The graph titled Security Market Line shows the relationship between the expected rate of return on an asset and its systematic risk, as measured by beta. The horizontal axis labeled Beta ranges from to The vertical axis labeled Rate of Return ranges from to There are two lines in the graph. The S M L proxy line passes through and The S M L true line passes through and
B
The graph titled Security Market Line shows the relationship between the expected rate of return on an asset and its systematic risk, as measured by beta. The horizontal axis labeled Beta ranges from to The vertical axis labeled Rate of Return ranges from to There are two lines in the graph. The S M L proxy line passes through and The S M L true line passes through and
C
The graph titled Security Market Line shows the relationship between the expected rate of return on an asset and its systematic risk, as measured by beta. The horizontal axis labeled Beta ranges from to The vertical axis labeled Rate of Return ranges from to There are two lines in the graph. The S M L proxy line passes through and The S M L true line passes through and
D
The graph titled Security Market Line shows the relationship between the expected rate of return on an asset and its systematic risk, as measured by beta. The horizontal axis labeled Beta ranges from to The vertical axis labeled Rate of Return ranges from to There are two lines in the graph. The S M L proxy line passes through and The S M L true line passes through and
Rader Tire has the following results for the last six periods. Calculate and compare the betas using each index. Do not round intermediate calculations. Round your answers to three decimal places.
RATES OF RETURN
Period Rader Tire Proxy Specific Index True General Index
beta using proxy:
beta using true:
If the current period return for Rader Tire is percent, are superior results being obtained using either the proxy or the true index beta? Do not round intermediate calculations. Round your answers to two decimal places.
ERRusing proxy:
ERRusing true:
Raders performance would be
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