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Characteristic Line and Security Market Line
You are given the following set of data:
HISTORICAL RATES OF RETURN
Year NYSE Stock X
1 - 26.5% - 21.0%
2 37.2 18.0
3 23.8 15.0
4 - 7.2 3.0
5 6.6 9.7
6 20.5 16.9
7 30.6 15.4
Use a spreadsheet (or a calculator with a linear regression function) to determine Stock X's beta coefficient. Round your answer to two decimal places.
Beta =
Determine the arithmetic average rates of return for Stock X and the NYSE over the period given. Calculate the standard deviations of returns for both Stock X and the NYSE. Round your answers to two decimal places.
Stock X NYSE
Average return % %
Standard deviation, σ % %
Assume that the situation during Years 1 to 7 is expected to prevail in the future (i.e., , , and both σx and bx in the future will equal their past values). Also assume that Stock X is in equilibrium - that is, it plots on the Security Market Line. What is the risk-free rate? Round your answer to two decimal places.
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What is the annual interest payment? Round to two decimal places
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