Question $5$

Consider the following sample of annual holding period returns on Masco $($a corporation$)$ and the

S&P$500$ Stock Index $($includes dividends and capital gains$).$ Assume that the Market Portfiolio is

composed of individual US stocks only, so that the S&P $500$ Stock Index is a good proxy of the

Market Portfolio.

a$)$ Use Excel to calculate Masco's beta given the data above.

b$)$ Use the data sample and your answer to b$)$ to estimate the expected return on Masco

stock according to the CAPM and according to the historical method. Assume that the

risk$-$free rate is $4\mathrm{.}5\%$ per year.

c$)$ What is the alpha of Masco? Is the stock underpriced or overpriced according to the

CAPM?