Risk and Return

Use the following data to explore the return-risk relation and the concept of beta for Goodman Industries stock, Landry Incorporated stock, and the market index:

Year	Goodman Industries Stock Price	Landry Incorporated Stock Price	Market Index
2013	$25.88	$73.13	17,495.97
2012	$22.13	$78.45	13,178.55
2011	$24.75	$73.13	13,019.97
2010	$16.13	$85.88	9,651.05
2009	$17.06	$90.00	8,403.42
2008	$11.44	$83.63	7,058.96

Part 1: Risk and Beta

A) Calculate the return each year for Goodman, Landry, and the Market using the equation Return = (Value this year Value last year) / Value last year. In addition, use the Excel function to find the average of the returns (10 Points)

B) Calculate the standard deviation of returns for Goodman, Landry, and the Market using the Excel function (10 Points)

C) Make a scatter plot of stock returns (y-axis) against market returns (x-axis) for both Goodman and Landry stock in one plot. Add a linear trendline to the scatter plot for each stock and include the equation on the chart. Label the y-axis, x-axis, legend, and chart title (10 Points)

D) For each stock, use the Excel function to calculate the correlation between the stock returns and market returns. Furthermore, label the standard deviations and calculate the beta according to the equation Beta = (Stock standard deviation / Market standard deviation) (Correlation between stock and market) (10 Points)

Part 2: Required Return

E) Calculate the expected return on the market according to Expected Return on Market = Risk- Free Rate + Market Risk Premium. Also calculate the required return for Goodman and Landry according to Required Return = Risk-Free Rate + (Beta)(Market Risk Premium) (10 Points)

F) If you formed a portfolio that consisted of 50% Goodman stock and 50% Landry stock, what would be its beta and its required return? (10 Points)

G) Suppose an investor wants to include Goodman Industries stock in his or her portfolio. Stocks A, B, and C are currently in the portfolio, and their betas are 0.769, 0.985, and 1.423, respectively. Calculate the new portfolios beta and required return if it consists of 25% of Goodman, 15% of Stock A, 40% of Stock B, and 20% of Stock C. (10 Points)

PLEASE SHOW ALL WORK WITH FORMULAS AND GRAPH