To make the graph, we first selected the range with the returns and the column heads, then clicked the chart wizard, then choose the scatter diagram without connected lines. That gave us the data points. We then used the drawing toolbar to make free-hand ("by eye") regression lines, and changed the lines color and weights to match the dots. Estimate Goodman's and Landry's betas as the slopes of regression lines with stock returns on the vertical axis (y - axis) and market return on the horizontal axis (x- axis). The risk-free rate on long - term Treasury bonds is 6.04%. Assume that the market risk premium is 5%. What is the expected return on the market? Now use the SML equation to calculates the two companies required returns. Market risk premium (RPM) = 5.000% Risk-free rate = 6.040% Required return = Goodman: Required return = Landry: = Required return = If you formed a portfolio that consisted of 50% Goodman stock and 50% Landry stock, what would be its beta and its required return? The beta of a portfolio is simply a weighted average of the betas of all stocks in the portifolio, so this portifolio's beta would be: Portfolio beta = 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 portfolio's required return if it consists of 25% of Goodman, 15% of stock B, and 20% of stock C. To make the graph, we first selected the range with the returns and the column heads, then clicked the chart wizard, then choose the scatter diagram without connected lines. That gave us the data points. We then used the drawing toolbar to make free-hand ("by eye") regression lines, and changed the lines color and weights to match the dots. Estimate Goodman's and Landry's betas as the slopes of regression lines with stock returns on the vertical axis (y - axis) and market return on the horizontal axis (x- axis). The risk-free rate on long - term Treasury bonds is 6.04%. Assume that the market risk premium is 5%. What is the expected return on the market? Now use the SML equation to calculates the two companies required returns. Market risk premium (RPM) = 5.000% Risk-free rate = 6.040% Required return = Goodman: Required return = Landry: = Required return = If you formed a portfolio that consisted of 50% Goodman stock and 50% Landry stock, what would be its beta and its required return? The beta of a portfolio is simply a weighted average of the betas of all stocks in the portifolio, so this portifolio's beta would be: Portfolio beta = 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 portfolio's required return if it consists of 25% of Goodman, 15% of stock B, and 20% of stock C
