9 & 10 - 9 Beta S&P 500 DJIA 10 Securities Market...

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Unformatted text preview: 9 Beta S&P 500 DJIA 10 Securities Market Line Beta Required Return Part 2 APR 0 0.7 0.5 5.35 0.69 7.1 1.54 0.79 8.02 1.54 1 10 1.5 14.65 2 19.3 2.5 23.95 3 28.6 0.69 0.79 Required Return 0.76 8.02 RPM = RRF = 9.30% 0.70% Securities Market Line 35 30 25 Required Return 20 15 10 5 0 0 0.5 0.69 0.79 1 Beta 1.5 2 Would you buy Verizon if you thought their expected return was their annualized average return (APR) from question #2? Explain your answer. Our group decided that we would not buy Verizon if we thought that their expected return was the same as the APR we calculated in part 2. The reason for this is because that APR is far below the required return (SML equation) for both of the Beta values which we calculated in part 4. Would you buy Verizon if you thought their expected return was their annualized average return (APR) from question #2? Explain your answer. Our group decided that we would not buy Verizon if we thought that their expected return was the same as the APR we calculated in part 2. The reason for this is because that APR is far below the required return (SML equation) for both of the Beta values which we calculated in part 4. ine Column C Column D 1.5 2 2.5 3 nnualized average return ir expected return was the e that APR is far below the culated in part 4. nnualized average return ir expected return was the e that APR is far below the culated in part 4. ...
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This note was uploaded on 05/05/2010 for the course FIN 221 taught by Professor Dyer during the Fall '09 term at University of Illinois, Urbana Champaign.

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