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Discuss the reason for the differences in the measured betas

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1. Given the following results, indicate what will happen to the beta for Sophie Fashion Co., relative to the market proxy, compared to the beta relative to the true market portfolio:

YEARLY RATES OF RETURN

Year Sophie Fashion (%) Market Proxy (%) True Market (%)

1

10

8

6

2

20

14

11

3

-14

-10

-7

4

-20

-18

-12

5

15

12

10

Discuss the reason for the differences in the measured betas for Sophie Fashion Co. Does the suggested relationship appear reasonable? Why or why not?

Reference no: EM13844996

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