6-11. (Measuring risk and rates of return) a. Given the holding-period returns shown here, compute the average returns and the standard deviations for the Zemin Corporation and for the market. MONTH 1 2 3 4 5 6 ZEMIN CORP. 6% 3% -1% -3% 5% 0% MARKET 4% 2% 1% -2% 2% 2% b. If Zemin's beta is 1.54 and the risk-free rate is 4 percent, what would be an appropriate required return for an investor owning Zemin? (Note: Because the returns of Zemin Corporation are based on monthly data, you will need to annualize the returns to make them compatible with the risk-free rate. For simplicity, you can convert from monthly to yearly returns by multiplying the average monthly returns by 12.) c. How does Zemin's historical average return compare with the return you be- lieve to be an appropriate, given the firm's systematic risk?
6-11. (Measuring risk and rates of return) a. Given the holding-period returns shown here, compute the average returns and the standard deviations for the Zemin Corporation and for the market. MONTH 1 2 3 4 5 6 ZEMIN CORP. 6% 3% -1% -3% 5% 0% MARKET 4% 2% 1% -2% 2% 2% b. If Zemin's beta is 1.54 and the risk-free rate is 4 percent, what would be an appropriate required return for an investor owning Zemin? (Note: Because the returns of Zemin Corporation are based on monthly data, you will need to annualize the returns to make them compatible with the risk-free rate. For simplicity, you can convert from monthly to yearly returns by multiplying the average monthly returns by 12.) c. How does Zemin's historical average return compare with the return you be- lieve to be an appropriate, given the firm's systematic risk?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:6-11. (Measuring risk and rates of return)
a. Given the holding-period returns shown here, compute the average returns
and the standard deviations for the Zemin Corporation and for the market.
MONTH
1
2
3
4
5
6
ZEMIN CORP.
6%
3%
-1%
-3%
5%
0%
MARKET
4%
2%
1%
-2%
2%
2%
b. If Zemin's beta is 1.54 and the risk-free rate is 4 percent, what would be an
appropriate required return for an investor owning Zemin? (Note: Because the
returns of Zemin Corporation are based on monthly data, you will need to
annualize the returns to make them compatible with the risk-free rate. For
simplicity, you can convert from monthly to yearly returns by multiplying the
average monthly returns by 12.)
c. How does Zemin's historical average return compare with the return you be-
lieve to be an appropriate, given the firm's systematic risk?
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