Info

36.19%

28.32%

a. Estimate the covariance in returns between Microsoft and the market portfolio b. Estimate the variances in returns on both investments c. Estimate the beta for Microsoft

13. United Airlines has a beta of 1.50. The standard deviation in the market portfolio is 22% and United Airlines has a standard deviation of 66%

a. Estimate the correlation between United Airlines and the market portfolio.

b. What proportion of United Airlines' risk is market risk?

14. You are using the arbitrage pricing model to estimate the expected return on Bethlehem Steel, and have derived the following estimates for the factor betas and risk premia:

Factor Beta Risk Premia

a. Which risk factor is Bethlehem Steel most exposed to? Is there any way, within the arbitrage pricing model, to identify the risk factor?

b. If the riskfree rate is 5%, estimate the expected return on Bethlehem Steel c. Now assume that the beta in the capital asset pricing model for Bethlehem Steel is 1.1, and that the risk premium for the market portfolio is 5%. Estimate the expected return, using the CAPM.

d. Why are the expected returns different using the two models?

i5. You are using the multi-factor model to estimate the expected return on Emerson Electric, and have derived the following estimates for the factor betas and risk premia:

Macro-economic Factor Measure Level of Interest rates T.bond rate

Beta 0.5

Term Structure Inflation rate Economic Growth

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Lessons From The Intelligent Investor

If you're like a lot of people watching the recession unfold, you have likely started to look at your finances under a microscope. Perhaps you have started saving the annual savings rate by people has started to recover a bit.

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