EBK INVESTMENTS
11th Edition
ISBN: 9781259357480
Author: Bodie
Publisher: MCGRAW HILL BOOK COMPANY
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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
Expert Solution & Answer
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
Beta of Stock B: 0.5945
Beta of Stock C: 0.4172
Beta of Stock D: 1.3799
Beta of Stock E: 0.9018
Beta of Stock F: 1.7769
Beta of Stock G: 0.6638
Beta of Stock H: 1.9119
Beta of Stock I: 2.0819
Tabulated summary has been constructed below:
| Stock | Beta |
| A | -0.47072 |
| B | 0.59447 |
| C | 0.41722 |
| D | 1.37988 |
| E | 0.90179 |
| F | 1.77688 |
| G | 0.66377 |
| H | 1.91194 |
| I | 2.08192 |
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