Read the box ?The Beta of a Stock? in Section 4.2 of Stock and Watson: Introduction to Econometrics updated Third Edition

• Suppose that the value of is greater than 1 for a particular stock. Show that the variance of (R Rf ) for this stock is greater than the variance of (Rm Rt)
• Suppose that the value of is less than 1 for a particular stock. Is it possible that variance of (R Rf ) for this stock is greater than the variance of (Rm Rt) (Hint: Don?t forget the regression error)
• In a given year, the rate of return on 3-month Treasury bills is 2.0% and the rate of return on a larget diversified portfolio of stocks (the S&P500) is 5.3%. For each company listed in the table in the box, use the estimated value of to estimate the stock?s expected rate of return.

Assignment Question Read the box \"The Beta of a Stock\" in Section 4.2 of Stock and Watson: Introduction to Econometrics updated Third Edition Suppose that the value of is greater than 1 for a particular stock. Show that the variance of (R Rf ) for this stock is greater than the variance of (Rm Rt) Suppose that the value of is less than 1 for a particular stock. Is it possible that variance of (R Rf ) for this stock is greater than the variance of (Rm Rt) (Hint: Don't forget the regression error) In a given year, the rate of return on 3-month Treasury bills is 2.0% and the rate of return on a larget diversified portfolio of stocks (the S&P500) is 5.3%. For each company listed in the table in the box, use the estimated value of to estimate the stock's expected rate of return. MFIN6201 - Empirical Techniques and Applications in Finance 1