H. The expected rates of return and the beta coefficients of the alternatives as

Question

H. The expected rates of return and the beta coefficients of the alternatives as supplied by the bank's computer program are as follows:

Security Return ( ) Risk (?)

High Tech 17.4% 1.29

Market 15.0 1.00

U.S. Rubber 13.8 0.68

T-bills 8.0 0.00

Collections 1.7 ?0.86

(1)What is a beta coefficient and how are betas used in risk analysis? (2) Do the expected returns appear to be related to each alternative's market risk? (3) Is it possible to choose among the alternatives on the basis of the information developed thus far? Use the data given at the beginning of the problem to consturct a graph that shows how the T-bill's, High Tech's, and Collections' beta coefficients are calculated. Discuss what beta measures and explain how it is used in risk analysis.

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