a. Estimate beta for each of the following securities assuming that the standard

Question

a. Estimate beta for each of the following securities assuming that the standard
deviation of returns for the market portfolio (m) is 8.0 percent.

b. Based on the Capital Asset Pricing Model, with a risk-free rate (rf ) of 7 percent and a market risk premium (rm - rf) of 8.8 percent, which of the securities, P, Q, R (if any) appear to be attractive investments?

Security Expected Return

P 12%      Q 18%     R 15%

Standard  Deviation

P 10%    Q20%         R15%

Correlation Coefficient Between Returns for the   Security and Market Portfolio

P 0.80     Q 0.60        R 0.40

Explanation / Answer

? = Correlation Coefficient

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