Assume that CAPM holds throughout. For Chasebank and the Market (the SP500) you

Question

Assume that CAPM holds throughout. For Chasebank and the Market (the SP500) you are given five years of historic returns data below:

1- Calculate the average returns for each of Citibank and the Market (in percent to 2 decimal places).

2-Calculate the variance for each of the returns for Citibank and the Market (to 5 decimal places).

3-Calculate the standard deviation for each of the returns for Citibank and the Market (to 5 decimal places).

4- Calculate the covariance between the returns for Citibank and the Market (to 5 decimal places).

5- Calculate the correlation between the returns for Citibank and the Market (to 3 decimal places)

6- Calculate the Beta for Citibank (to 2 decimal places).

7-Please draw the Security Market Line illustrating the returns and beta for each of Citibank and the Market. Assume that the risk-free rate of return is 3%.

Yeat Chasebank stock returns Market returns 2008 -73.40% -37.00% 2009 -50.52% 26.46% 2010 42.90% 15.06% 2011 -44.31% 2.11% 2012 50.51% 16.00%

Explanation / Answer

X Y X-X MEAN Y-Y MEAN (X-XMEAN)^2 (Y-YMEAN)^2 (X-XMEAN)*(Y-YMEAN) Year Chasebank stock return Market returns 2008 -73.40% -37% -58.44% -42% 34.15% 17.24% 24.2661333600% 2009 -50.52% 26.46% -35.56% 22% 12.64% 4.81% -7.7988530400% 2010 42.90% 15.06% 57.86% 11% 33.48% 1.11% 6.0953937600% 2011 -44.31% 2.11% -29.35% -2% 8.61% 0.06% 0.7089993600% 2012 50.51% 16% 65.47% 11% 42.87% 1.32% 7.5124867600% Average Return -14.96400% 4.52600% Variance 26.350540% 4.907928% Covariance 6.1568320400% Standard deviation 51.332777% 22.153844% Correlation 0.5413940 it is covariance between X and Y/(SD of X*SD of Y) Beta 1.2544667 It is covariance between X and Y /variance of y X is stock Y is market

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