Reference no: EM131522386

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 (β_w, slope of regression line)

b. alpha (α_w, intercept of regression line)

c. unsystematic variance (σ²w - β²wσ²m)

d. correlation coefficient (ρ).