Question 3 The table below provides the end-of-year share prices (in GB pence) for Centrica plc and National Express Group plc the end-of-year values for the FTSE 100 Index, which is a proxy for the market portfolio, M. YEAR Centrica plc National Express Group plc Market Portfolio, M 292.6 187.4 337.7 465.2 2002 224.7 3940.4 2003 151.5 4476.9 2004 199.5 4814.3 2005 2006 2007 2008 2009 2010 205.8 5618.8 235.5 451.7 6220.8 545.4 6456.9 4434.2 5412.9 5899.9 5572.3 327.6 293.0 607.1 256.1 168.8 268.1 317.8 207.1 2011 2012 2013 2014 2015 2016 2017 243.6 291.6 216.1 5897.8 206.5 290.9 348.3 6749.1 309.6 292.5 204.0 223.5 6566.1 254.9 6242.3 301.9 7142.8 337.8 7687.8 366.2 393.9 2018 133.1 6728.1 2019 136.1 7542.4 Source: Yahoo Finance. Required: (a) Calculate the systematic risk (B² x o, the non-systematic risk (o²) – (B² × o² and the total risk (o) of the equity shares of Centrica and National Express Group. (b) Which company's returns are better explained by the market's returns?
Question 3 The table below provides the end-of-year share prices (in GB pence) for Centrica plc and National Express Group plc the end-of-year values for the FTSE 100 Index, which is a proxy for the market portfolio, M. YEAR Centrica plc National Express Group plc Market Portfolio, M 292.6 187.4 337.7 465.2 2002 224.7 3940.4 2003 151.5 4476.9 2004 199.5 4814.3 2005 2006 2007 2008 2009 2010 205.8 5618.8 235.5 451.7 6220.8 545.4 6456.9 4434.2 5412.9 5899.9 5572.3 327.6 293.0 607.1 256.1 168.8 268.1 317.8 207.1 2011 2012 2013 2014 2015 2016 2017 243.6 291.6 216.1 5897.8 206.5 290.9 348.3 6749.1 309.6 292.5 204.0 223.5 6566.1 254.9 6242.3 301.9 7142.8 337.8 7687.8 366.2 393.9 2018 133.1 6728.1 2019 136.1 7542.4 Source: Yahoo Finance. Required: (a) Calculate the systematic risk (B² x o, the non-systematic risk (o²) – (B² × o² and the total risk (o) of the equity shares of Centrica and National Express Group. (b) Which company's returns are better explained by the market's returns?
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:Question 3
The table below provides the end-of-year share prices (in GB pence) for Centrica plc and
National Express Group plc the end-of-year values for the FTSE 100 Index, which is a proxy
for the market portfolio, M.
YEAR
Centrica plc
National Express Group plc
Market Portfolio, M
2002
224.7
151.5
199.5
205.8
292.6
187.4
3940.4
2003
4476.9
4814.3
5618.8
6220.8
6456.9
4434.2
5412.9
2004
337.7
2005
2006
2007
2008
235.5
327.6
293.0
256.1
465.2
451.7
545.4
607.1
168.8
207.1
243.6
2009
2010
2011
2012
2013
268.1
317.8
291.6
348.3
309.6
5899.9
5572.3
5897.8
6749.1
216.1
206.5
290.9
2014
6566.1
6242.3
7142.8
2015
292.5
254.9
2016
204.0
301.9
223.5
133.1
136.1
2017
337.8
7687.8
2018
366.2
393.9
6728.1
7542.4
2019
Source: Yahoo Finance.
Required:
(a) Calculate the systematic risk (82 x o, the non-systematic risk (o2) – (8? x o?)
and the total risk (of) of the equity shares of Centrica and National Express
Group.
(b) Which company's returns are better explained by the market's returns?
(c) Suppose the market is in equilibrium. Assuming the risk-free interest rate of 0.50
percent per annum, calculate the expected equilibrium risk-premium for each of
the two shares. Comment on the results.
You must show computations and workings and state assumptions you have made
clearly and neatly.
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