Homework Chapter 8 HomeworkSave Score 0 of 4 pts P810 simila

Homework: Chapter 8 HomeworkSave Score: 0 of 4 pts P8-10 (similar to) 4 of 10 (0 complete) HW Score: 0%, 0 of 30 Question Help (Related to Checkpoint 8.3) (CAPM and expected returns) a. Given the following holding-period returns, E compute the average returns and the standand deviations for the Sugita Corporation and for the market b. If Sugita\'s beta is 0.87 and the risk-free rate is 9 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? a. Given the holding-period returns shown in the table, the average monthly return for the Sugita Corporation is L1%. (Round to three decimal places.) intorviour ans swer in the answer box and then click Check Answer

Solution

2.

Formula to compute expected rate of return

Expected return = risk-free rate + [beta x (market return - risk free rate)]

Expected Return = 9% + [0.87 x (24.40% - 9%)]

Expected Return = 22.40%

Month	Sugita Corp.	(Xt - X)2	Market	(Xt - X)2
1	2	0.284	1.2	0.694
2	-0.8	11.111	2	0.001
3	0	6.418	3	0.934
4	0	6.418	0	4.134
5	7	19.951	6	15.734
6	7	19.951	0	4.134
Total	15.2	64.133	12.2	25.633
Expected return (X)	2.533		2.033
Variance		12.827		5.127
Standard Deviation		3.581		2.264