Canadian PacificCSXKansas City SouthernNorfolk SouthernUnion PacificIndustry portfolioBeta1.071.180.971.331.091.13Standard Error0.180.240.200.180.160.14>TABLE 9.1 Estimates of betas and standard errors for a sample of railroad companies and for an equallyweighted portfolio of these companies, based on monthly returns from March 2015 to February 2020. Theportfolio beta may be more reliable than the betas of the individual companies. Note the lower standard error forthe portfolio. Page 27112. Measuring risk (S9.1) Look again at Table 9.1. This time we will concentrate on Union Pacific.a. Calculate Union Pacific's cost of equity from the CAPM using its own beta estimate and the industry beta estimate. Howdifferent are your answers? Assume a risk-free rate of 2% and a market risk premium of 7%.b. Can you be confident that Union Pacific's true beta is not the industry average?c. Under what circumstances might you advise Union Pacific to calculate its cost of equity based on its own beta estimate?

Canadian Pacific CSX Kansas City Southern Norfolk Southern Union Pacific Industry portfolio Beta 1.07 1.18 0.97 1.33 1.09 1.13 Standard Error 0.18 0.24 0.20 0.18 0.16 0.14 > TABLE 9.1 Estimates of betas and standard errors for a sample of railroad companies and for an equally weighted portfolio of these companies, based on monthly returns from March 2015 to February 2020. The portfolio beta may be more reliable than the betas of the individual companies. Note the lower standard error for the portfolio.

Canadian Pacific CSX Kansas City Southern Norfolk Southern Union Pacific Industry portfolio Beta 1.07 1.18 0.97 1.33 1.09 1.13 Standard Error 0.18 0.24 0.20 0.18 0.16 0.14 > TABLE 9.1 Estimates of betas and standard errors for a sample of railroad companies and for an equally weighted portfolio of these companies, based on monthly returns from March 2015 to February 2020. The portfolio beta may be more reliable than the betas of the individual companies. Note the lower standard error for the portfolio.

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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