Year 1 2 3 HISTORICAL RATES OF RETURN NYSE Stock X - 26.5% - 19.0% 37.2 22.0 23.8 15.0 - 7.2 4.0 6.6 11.1 20.5 18.6 30.6 15.1 4 5 6 7 The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. Open spreadsheet a. Use a spreadsheet (or a calculator with a linear regression function) to determine Stock X's beta coefficient. Do not round intermediate calculations. Round your answer to two decimal places Beta = b. Determine the arithmetic average rates of return for Stock X and the NYSE over the period given. Calculate the standard deviations of returns for both Stock X and the NYSE. Do not round intermediate calculations. Round your answers to two decimal places. NYSE Stock X % % Average return, Ang Standard deviation, o % % C. Assume that the situation during Years 1 to 7 is expected to prevail in the future (i.e., x = 7x Average , 1 M = F M Average, and both ox and by in the future will equal their past values). Also assume that Stock X is in equilibrium - that is, it plots on the Security Market Line. What is the risk-free rate? Do not round intermediate calculations. Round your answer to two decimal places. d. Plot the Security Market Line. Select the correct graph. The correct graph is r(%) 30 Security Market Line 20 10 A. -0.5 0.5 2.5 3 3.5 -10 Beta -20 r(%) 30 Security Market Line 20 10 B. -0.5 1.5 2.5 3.5 4 -10 Beta 10 C. -0.5 0.5 1.5 2.5 3 3.5 -10 Beta -20 r(%) 30 Security Market Line 209 10 D -0.5 0.5 1.5 2 2.5 3 3.5 4 -10 Beta -20 e. Suppose you hold a large, well-diversified portfolio and are considering adding to that portfolio either Stock X or another stock, Stock Y, which has the same beta as Stock X but a higher standard deviation of returns. Stocks X and Y have the same expected returns: fx = fy = 10.6% . Which stock should you choose