Question

Economic state	Probability	T-Bill	Alta Indus.	Repo Men	American Foam	Market Port.(index)
Recession	0.1	8.00%	-22.0%	28.0%	10.0%	-13.0%
Below Average	0.2	8.00%	-2.0%	14.7%	-10.0%	1.0%
Average	0.4	8.00%	20.0%	0.0%	7.0%	15.0%
Above Average	0.2	8.00%	35.0%	-10.0%	45.0%	29.0%
Boom	0.1	8.00%	50.0%	-20.0%	30.0%	43.0

Barney Smith Investment Advisors recently issued estimates for the state of the economy and the rate of return on each state of the economy. Alta Industries, Inc. is an electronics firm; Repo Men Inc. collects past due debts; and American Foam manufactures mattresses and various other foam products. Barney Smith also maintains an "index fund" which owns a market-weighted fraction of all publicly traded stocks; you can invest in that fund and thus obtain average stock market results. Given the situation as described, answer the following questions.

Please calculate the beta on each alternative.

Answer 1

Answer :

The beta coefficients of the alternatives as supplied by barney smith’s computer program are as follows:

      Risk (Beta)

T-Bills 0.00

Alta Inds 1.29

Repo Men 0.86

American Foam 0.68

Market port(index) 1.00

Note :  T-bills have 0 risk.