INVESTMENTS(LL)W/CONNECT
INVESTMENTS(LL)W/CONNECT
11th Edition
ISBN: 9781260433920
Author: Bodie
Publisher: McGraw-Hill Publishing Co.
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Chapter 13, Problem 1PS
Summary Introduction

To compute: Beta and construct a tabulated summary.

Introduction: The model that shows the relation between systematic risk and expected return on assets (especially stocks) is known as capital asset pricing model (CAPM).

Expert Solution & Answer
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Explanation of Solution

Security market line: SML refers to a line that represents CAPM (capital asset pricing model), which further shows the level of systematic, or market, risks for various securities against the expected return of the market at a stated point of time.

Regression can be applied to excess return to evaluate beta for each portfolio. It has been shown below:

Beta of Stock A: -0.4707

  INVESTMENTS(LL)W/CONNECT, Chapter 13, Problem 1PS , additional homework tip  1

Beta of Stock B: 0.5945

  INVESTMENTS(LL)W/CONNECT, Chapter 13, Problem 1PS , additional homework tip  2

Beta of Stock C: 0.4172

  INVESTMENTS(LL)W/CONNECT, Chapter 13, Problem 1PS , additional homework tip  3

Beta of Stock D: 1.3799

  INVESTMENTS(LL)W/CONNECT, Chapter 13, Problem 1PS , additional homework tip  4

Beta of Stock E: 0.9018

  INVESTMENTS(LL)W/CONNECT, Chapter 13, Problem 1PS , additional homework tip  5

Beta of Stock F: 1.7769

  INVESTMENTS(LL)W/CONNECT, Chapter 13, Problem 1PS , additional homework tip  6

Beta of Stock G: 0.6638

  INVESTMENTS(LL)W/CONNECT, Chapter 13, Problem 1PS , additional homework tip  7

Beta of Stock H: 1.9119

  INVESTMENTS(LL)W/CONNECT, Chapter 13, Problem 1PS , additional homework tip  8

Beta of Stock I: 2.0819

  INVESTMENTS(LL)W/CONNECT, Chapter 13, Problem 1PS , additional homework tip  9

Tabulated summary has been constructed below:

    StockBeta
    A-0.47072
    B0.59447
    C0.41722
    D1.37988
    E0.90179
    F1.77688
    G0.66377
    H1.91194
    I2.08192

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