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Assume the risk free rate is 0.0%. The SP500 is considered the market. Six years of annual returns are provided in the table below. Use this information to help answer questions 21-22. SP500 Stock A Stock B 2013 80% 6.4% 4.8% 2014 4.0% 3.2% 2.4% 1 Year Returns 2015 -40.0% -32.0% -24.0% 2016 15.0% 12.0% 9.0% 2017 20.0% 16.0% 12.0% 2018 12.0% 9.6% 7.2%

21. Which of the following statements is most likely FALSE:

  1. The SP500 index has a higher beta than Stock B

  2. The SP500 index has a higher beta than Stock A

  3. Stock A has a higher beta than Stock B

  4. Stock A index has a beta of 0.80

  5. The SP500 index has a beta of 1.20

22. Over the past six years, which of the following statements is most likely TRUE:

  1. The SP500 index has the highest arithmetic average return, but the lowest geometric return

  2. The SP500 index has the highest arithmetic average return, while Stock A has the lowest geometric return

  3. The SP500 index has the highest arithmetic average return, while Stock B has the lowest geometric return

  4. The SP500 index has the lowest geometric average return, while Stock B has the highest arithmetic return

  5. The SP500 index has the lowest geometric average return, while Stock A has the highest arithmetic return

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Home nert Page Layout Formulas Data Review View dd-Ins s Cut ta copy. ー E ゴWrap Text B า 프 . Ej-., Δ. : r_一 逻锂函Merge & Center. $, % , 弼,8 Conditional Format CeInsert Delete Format Formatting as Table Styles2 Clear Sort &Find & Format Painter Clipboard Alignment Number Cells Edting AA126 AB AC AD AE AF AG AH Al Al 126 127 128 129 130 131 132 133 134 135 136 137 138 139 140 141 142 143 144 4 Sheet Sheet4 PV FV DIVIDEND EMV MEAN STDV STOCK A (R(M)-E(R(M)))A2 DA2 YEAR R(A) R(A) E(A) 6.4 3.2 -32 12 16 9.6 2.5333 3.8667 0.6667 34.5333 9.4667 13.4667 7.0667 0.8333 0.5555556 0.69444444 -40-43.1667 1490.6889 1863.36111 11.8333 112.02222 140.027778 16.8333 226.68889 283.361111 8.8333 62.422222 78.0277778 4 15 20 12 3.1667 6 E(A) ER(M) COV(R(A), R(M)) 1911.0667 BETA (A)- BETA (A)- COV(R(A),R(M))/VAR (R(M)) VAR(RM)2388.8333 0.8000 1911.0667/2388.8333 DEAR Sheet2 | CO. TIME SERIES corr REGRESSION CAMERAEXP RETURN ! TREND MATRIXIN 18-01-2019Home nert Page Layout Formulas Data Review View dd-Ins as Cut aCopy E AutoSum ー E ゴWrap Text B า 프 . Ej-., Δ. : r_一 逻锂函Merge & Center. $, % , 弼,8 conditional Format . Cell Insert Delete Format Sort &Find & Format Painter Formatting as Table Styles2 Clear Clipboard Alignment Number Cells Edting AG162 AB AC AD AE AF AG Al Al 145 146 147 148 149 150 151 152 153 154 155 156 157 158 159 160 161 162 163 14 Sheet1 . Sheet4 . PV FV DIVIDEND EMV . MEAN STDV STOCK B (R(M)-E(R(M)))A2 DA2 YEAR R(B) A(B)-E(B) R(M) R(M)-ER(M) BD 4.8 2.9000 0.5000 25.9000 7.1000 10.1000 5.3000 2.4 0.8333 0.4166667 0.69444444 -40-43.1667 1118.0167 1863.36111 11.8333 84.016667 140.027778 16.8333 170.01667 283.361111 8.8333 46.816667 78.0277778 4 15 12 7.2 1.9000 12 3.1667 E(B) = ER(M) COV(R(B), R(M)) 1433.3000 BETA (B) COV(R(B),R(M)/VAR (R(M) BETA (B)- VAR(RM)2388.8333 0.6000 1433.3/2388.8333 21 ANS S&P 500 HAS BETA OF 1.20 ALL OTHER ARE PERFECTLY CORRECT, SEE THE CALCULATION DEAR Sheet2 | CO, TİME SERIES corr REGRESSION CAMERAEXP RETURN ! TREND MATRIXIN 10:10 18-01-2019Home nert Page Layout Formulas Data Review View dd-Ins Cut E AutoSum ー E ゴWrap Text ta copy ▼ в 1 프· ー· 鱼, Δ. : rーー 遑锂函Merge & Center. $, % , 弼,8 C Conditional Format CeInsert Delete Format Formatting, as Table w styles. ▼ ㆆ ▼ Sort &Find & 2 ClearFe Select Edting Format Painter Clipboard Alignment Number AF180 AB AC AD AE AF AG AH Al Al 164 165 166 167 168 169 170 ADD 100 TO RETURN FOR GEOMWTRIC RETURN R(A) R(B) R(M) R(A) R(B) R(M) 106.4 103.2 104.8 102.4 76 109 112 107.2 108 104 60 115 120 112 3.2 32 4 24 9 12 112 116 109.6 15 20 172 173 ARITHMETIC 174 RETURN 175 176 6 9.6 GEOMETRIC E(A) 2.5333 1.9000 3.1667 RETURN 1.0267 1.0925 0.6818 GEOMEAN(AG167:AG172) -100 22 ANS FIRST OPTION S&P HAS HIGHEST ARITHEMTIC RETURN BUT LOWEST GEOMETRIC RETURN 178 179 180 181 182 14 Sheet1 . Sheet4 . PV FV DIVIDEND . EMV . MEAN STDV DEAR Sheet2 | CO. TİME SERIES corr REGRESSION CAMERAEXP RETURN ! TREND MATRIXIN 18-01-2019

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