Exhibit 8.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) $$\begin{array}{l}
\quad\quad\quad\quad\quad\quad\quad\quad\text { Rates of Return }\
\begin{array} { c c c }
\text { Year } & \text { RA Computer } & \text { Market Index } \
\hline 1 & 13 & 17 \
2 & 9 & 15 \
3 & - 11 & 6 \
4 & 10 & 8 \
5 & 11 & 10 \
6 & 6 & 12
\end{array}
\end{array}$$
-Refer to Exhibit 8.1. If you expected the return on the Market Index to be 12%, what would you expect the return on RA Computer to be?
A)7.26%
B)6.75%
C)8.00%
D)9.37%
E)-3.29%

Question

Exhibit 8.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) $$\begin{array}{l}
\quad\quad\quad\quad\quad\quad\quad\quad\text { Rates of Return }\
\begin{array} { c c c } 
\text { Year } & \text { RA Computer } & \text { Market Index } \
\hline 1 & 13 & 17 \
2 & 9 & 15 \
3 & - 11 & 6 \
4 & 10 & 8 \
5 & 11 & 10 \
6 & 6 & 12
\end{array}
\end{array}$$
-Refer to Exhibit 8.1. If you expected the return on the Market Index to be 12%, what would you expect the return on RA Computer to be?
A)7.26%
B)6.75%
C)8.00%
D)9.37%
E)-3.29%

Quizplus · Accepted Answer

The expected return on RA Computer can be calculated using the historical beta, which is the covariance of RA Computer's returns with the Market Index divided by the variance of the Market Index. The beta is approximately 0.605. Using the Capital Asset Pricing Model (CAPM), the expected return on RA Computer is 7.26%.

Exhibit 81 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

Exhibit 81
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)