Your immediate supervisor in an investment bank would like to know the market risk associated with FedEx and has asked you to help him on that. To that end, you gather data on FedEx price, risk-free rate of return and return on the S & P Index; and run a regression of the excess returns in Excel (see Exhibit 1)

(a) What is the equity beta of FedEx? How do you assess its sensitivity to changes in market conditions? (b) What is the alpha value? What can you say about returns on the FedEx stock? (c) Suppose the annual risk-free rate is 5% and annual return on the S&P index is 10%. Estimate the expected required of return on the FedEx stock using the CAPM.

Exhibit 1: Regression Results FedEx Excess Returns on S\&P Excess Returns SUMMARY OUTPUT \begin{tabular}{l|r} \hline \multicolumn{2}{c}{ Regression Statistics } \\ \hline Multiple R & 0.91376455 \\ \hline R Square & 0.83496565 \\ \hline Adjusted R Square & 0.81996253 \\ \hline Standard Error & 0.06452863 \\ \hline Observations & 13 \\ \hline \end{tabular} ANOVA \begin{tabular}{l|r|rc|c|c} \hline & df & \multicolumn{1}{c}{ SS } & \multicolumn{1}{c|}{ MS } & F & Significance F \\ \hline Regression & 1 & 0.23173513 & 0.231735 & 55.6527908 & 1.26127E05 \\ \hline Residual & 11 & 0.045803389 & 0.004164 & & \\ \hline Total & 12 & 0.277538519 & & & \\ \hline \end{tabular}