6-The following are the historic returns for the Chelle Computer Company:
Year Chelle Computer General index
1 37 15
2 9 13
3 -11 14
4 8 -9
5 11 12
6 4 9
Based on this information Compute the following:
a. The correlation coefficient between Celle computer and the general index.
c. The beta for the Celle Computer Company.
8- As an equity analyst, you have developed the following return forecasts and risk estimates for two different stock mutual funds. (Fund T and Fund U).
Forecasted Return CAPM beta
Fund T 9.0% 1.20
Fund U 10.0 .80
a. If the risk free rate is 3.9% and the expected market risk premium (i.e. E(Rm) –RFR) is 6.1% calculate the expected return for each mutual fund according to the CAPM.
c. According to your analysts, are funds T and U overvalued, undervalued or properly valued?
10. Draw the security market line for each of the following conditions:
a. 1- RFR= 0.08; Rm (proxy) =0.12
2- Rz=0.06; Rm[true]= 0.15
c. If the current period return for the market is 12% and for Rader Tire it is 11%. Are superior results being obtained for either index beta?