• Quantitative solutions can be used to check your work. But, you are expected to develop and show Excel formulas for these solutions. The path to the solution is where you will be evaluated.
• Problem 6-14A: If you were to graph the data set of an individual stock's prices against the broad stock market index on each of given dates, you would see a pattern that could be expressed as a "best fit" straight line. The stock's"beta" is the slope of such a line. To solve for the beta, you need the Excel formula for SLOPE. Go to the pull-down formulas for finance; unfortunately, the formula is not listed by name. Go to the bottom of the formula list and type in SLOPE to enable the formula to appear. Insert the data to calculate the beta of each stock.

(6-12) Required Rate of Return Stock R has a beta of 1.5, Stock S has a beta of 0.75, the expected rate of return on an average stock is 13%, and the risk-free rate is 7%. By how much does the required return on the riskier stock exceed that on the less risky stock? Answer + 4.5% (6-14) Historical Returns: Expected and Required Rates of Return You have observed the following returns over time: Stock Y Market Year 2015 2016 2017 2018 2019 Stock x 14% 19 -16 13% 7 -5 12% 10 -12 3 20 1 11 15 Assume that the risk-free rate is 6% and the market risk premium is 5%. a. What are the betas of Stocks X and Y? Answer + box = 1.3471; by = 0.6508. b. What are the required rates of return on Stocks X and Y? Answer + x = 12.7355%; ry 9.254% c. What is the required rate of return on a portfolio consisting of 80% of Stock X and 20% of Stock Y? Answer y = 12.04%