Q1. Consider the following data for Dodger Corp. and the S&P 500:
|
Year
|
Dodger Corp. price
|
S&P 500 level
|
|
1979
|
40.00
|
150.00
|
|
1980
|
36.00
|
150.00
|
|
1981
|
34.20
|
145.50
|
|
1982
|
20.52
|
160.05
|
|
1983
|
22.57
|
163.25
|
|
1984
|
22.34
|
159.99
|
a. What is your estimate of beta for Dodger Corp.?
b. What portion of the firm's total variance is systematic, and what portion is unsystematic?
c. What is the required rate of return for Dodger Corp. if the riskless rate is 7% and the market risk premium is 8%?
Q2. An efficient portfolio has an expected return of 20%. The riskless rate is 5%, the return on the market portfolio is 15%, and the standard deviation of the market portfolio is 20%. What is the efficient portfolio's beta, standard deviation, and correlation coefficient with the market portfolio?
Q3. Consider the following historical data for the returns on assets A and B and the market portfolio:
|
period
|
asset A
|
asset B
|
market portfolio
|
|
1
|
10%
|
6%
|
4%
|
|
2
|
-3%
|
6%
|
1%
|
|
3
|
5%
|
2%
|
5%
|
|
4
|
2%
|
4%
|
2%
|
|
5
|
1%
|
2%
|
1%
|
a. What is the covariance between asset A and asset B?
b. If the beta of asset B is 0.5, what is the systematic return and non-systematic return for asset B in each period?
Q4. The annual returns of Wonder Widgets, Inc. and the S&P 500 Composite Index over the last ten years were as follows:
|
year
|
Wonder Widgets
|
S&P 500
|
|
1
|
-15%
|
-8.5%
|
|
2
|
10%
|
4.0%
|
|
3
|
12%
|
14.0%
|
|
4
|
20%
|
15.0%
|
|
5
|
-20%
|
-14.0%
|
|
6
|
-15%
|
-26.0%
|
|
7
|
25%
|
37.0%
|
|
8
|
30%
|
24.0%
|
|
9
|
-10%
|
-7.0%
|
|
10
|
3%
|
6.5%
|
Find the following for Wonder Widgets:
a. beta (βw, slope of regression line)
b. alpha (αw, intercept of regression line)
c. unsystematic variance (σ2w - β2wσ2m)
d. correlation coefficient (ρ).