1. Based on five years of monthly data, you derive the following information for the compa- nies listed:
|
Company
|
a i (Intercept)
|
σ i
|
r i M
|
|
Intel
|
0.22
|
12.10%
|
0.72
|
|
Ford
|
0.10
|
14.60
|
0.33
|
|
Anheuser Busch
|
0.17
|
7.60
|
0.55
|
|
Merck
|
0.05
|
10.20
|
0.60
|
|
S&P 500
|
0.00
|
5.50
|
1.00
|
- Compute the beta coefficient for each stock.
-
Assuming a risk-free rate of 8 percent and an expected return for the market portfolio of 15 percent, compute the expected (required) return for all the stocks and plot them on the SML.
-
Plot the following estimated returns for the next year on the SML and indicate which stocks are undervalued or overvalued.