- Compute the return for each year on a portfolio that contains an equal investment in all 12 securities.
- Compute the 15-year average return and standard deviation of return for the portfolio that consists of all 12 securities with equally weighted investment.
- Compute the correlation and covariance between the return on company #12 and the return on the equally-weighted portfolio. Hint: There is a spreadsheet command that does this calculation.
- Compute the beta of Company #12 using the information you have collected.
- Now using the beta you created for Company #12, compute the required rate of return using the Capital Asset Pricing Model (CAPM), assuming that the average market return is the return of your equally-weighted portfolio and the risk-free rate of return is 2.5%.
- If you were told analysts estimate that Company #12 will have a 5% rate of return next year, would you buy the stock? Why or why not?
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