You are given the following set of data:

		HISTORICAL RATES OF RETURN
Year		NYSE		Stock X
1		- 26.5%		- 10.0%
2		37.2		21.0
3		23.8		18.5
4		- 7.2		2.0
5		6.6		8.9
6		20.5		19.9
7		30.6		18.8

1. Use a spreadsheet (or a calculator with a linear regression function) to determine Stock X's beta coefficient. Round your answer to two decimal places. Beta =
2. 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. Round your answers to two decimal places.

   		Stock X		NYSE
   Average return,		%		%
   Standard deviation,		%		%

3. Assume that the situation during Years 1 to 7 is expected to prevail in the future (i.e., , , and both _x and b_x 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? Round your answer to two decimal places. %
4. Plot the Security Market Line.

   Select the correct graph.

   The correct graph is -Select-ABCDItem 7 .

5. 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: = = 10.6% . Which stock should you choose ?