Related to Checkpoint 83 CAPM and expected returns a Gi com

(Related to Checkpoint 8.3) (CAPM and expected returns) a. Gi ? compute the average returns and the standard deviations for the Sugita Corporation and for the market. b. If Sugita\'s beta is 1.32 and the risk-free rate is 7 percent, what would be an expected return for an investor owning Sugita? (Note: Because the preceding returns are based on monthly data, you will need to annualize the returns to make them comparable with the risk-free rate. For simplicity, you can convert from monthly to yearly returns by multiplying the average monthly returns by 12.) c. How does Sugita\'s historical average return compare with the return you should expect based on the Capital Asset Pricing Model and the firm\'s systematic risk? iven the following holding-period returns a. Given the holding-period returns shown in the table, the average monthly return for the Sugita Corporation is 1.6 %. (Round to three decimal places.)

Solution

a.

for standard dev usestdev.s in Excel

b.

expected return = 7% + 1.32*(2.13%*12% - 7%) = 31.50%

c. Return for the stock = 1.60% * 12 = 19.20%

so it is not performing as per the CAPM model

	2.4%	1.8%
	-0.8%	2%
	-1.0%	1%
	1.0%	1%
	4.0%	5%
	4.0%	2%
average	1.60%	2.13%
std dev	2.2379%	1.4787%