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You are given the following set of data: a. Use a spreadsheet (or a calculator with a linear regression function) to determine Stock X's beta
You are given the following set of data: a. Use a spreadsheet (or a calculator with a linear regression function) to determine Stock X's beta coefficient. 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. c. Assume that the situation during Years 1 to 7 is expected to prevail in the future (i.e., r^X=rX,Average,r^M=rM,Average, and both X and bX 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? d. Plot the Security Market Line. 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: r^X=r^Y=10.6%. Which stock should you choose
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