You need to estimate the equity cost of capital for XYZ Corp. You have the following data available regarding past returns:

a$.$ What was XYZ$\text{'}$s average historical return?

b$.$ Compute the market's and XYZ$\text{'}$s excess returns for each year. Estimate XYZ$\text{'}$s beta.

c$.$ Estimate XYZ$\text{'}$s historical alpha.

d$.$ Suppose the current risk$-$free rate is $4\%,$ and you expect the market's return to be $9\%.$ Use the CAPM to estimate an expected return for XYZ Corp.$\text{'}$s stock.

e$.$ Would you base your estimate of XYZ$\text{'}$s equity cost of capital on your answer in part $($a$)$ or in part $($d$)?$

a$.$ What was XYZ$\text{'}$s average historical return?

XYZ$\text{'}$s average historical return was $\%.($Round to one decimal place.$)$

b$.$ Compute the market's and XYZ$\text{'}$s excess returns for each year.

The market's excess return for $2007$ was

$($Round to the nearest integer.$)$

The market's excess return for $2008$ was

$\%.($Round to the nearest integer.$)$

XYZ$\text{'}$s excess return for $2007$ was $\%.($Round to the nearest integer.$)$

XYZ$\text{'}$s excess return for $2008$ was $\%.($Round to the nearest integer.$)$

Estimate XYZ$\text{'}$s beta.

XYZ$\text{'}$s beta is $.($Round to two decimal places.$)$

c$.$ Estimate XYZ$\text{'}$s historical alpha.

XYZ$\text{'}$s historical alpha was

$\%.($Round to two decimal places.$)$

Data table

$($Click on the following icon $$ in order to copy its contents into a spreadsheet.$)$

d$.$ Suppose the current$$ risk$-$free rate is $4\%,$ and you expect the$$ market's return to be $9\%.$ Use the CAPM to estimate an expected return for XYZ$$ Corp.$\text{'}$s stock.

The expected return for XYZ$$ Corp.$\text{'}$s stock was

$$

enter your response here$\%.($Round to two decimal$$ places.$)$

Part $9$

e$.$ Would you base your estimate of$$ XYZ$\text{'}$s equity cost of capital on your answer in part $($a$)$ or in part $($d$)?($Select the best choice$$ below.$)$

A$.$

Part $($d$)$ because the CAPM provides a better estimate of expected returns.

B$.$

Part $($a$)$ because the CAPM provides a better estimate of expected returns.

C$.$

Part $($d$)$ because the average past returns provides a better estimate of expected returns.

D$.$

Part $($a$)$ because the average past returns provides a better estimate of expected returns.