Question

help me with this please no excel please

15. Use the following information to answer the question below. o Year 2008 2009 2010 2011 Risk-free Return 1.75% 1.25% 1.25% 1.50% Market Return 7.50% -30.00% 9.50% 11.50% PE-Waters Return 4.50% -31.50% 6.00% 5.50% B, = 6.47826) Bez 1.048 B3:0.57577 Bu -0.4 Using the historical average excess retums and historical volatilities of both PE- Waters and Market portfolio that you can calculate from the information above. your estimate of PE-Waters' Beta is closest to: A) C) D) 2.065 0.384 0.927 1.122 ATO au

Answer 1

Calculating Beta of PE-Waters

Year	Market Return (Rm)	PE-Waters Return (Rx)	Rm - RM	R -R	(Rm - Rm)(R: -R)	(Rm - Rm)
2008	7.5	4.5	7.875	8.5	66.9375	62.0156
2009	-30	-31.5	-29.625	-27.5	814.6875	877.6406
2010	9.5	6	9.875	10	98.75	97.5156
2011	11.5	5	11.875	9	106.875	141.0156
	-1.5	-16			1087.25	1178.1875
	ΣRm	ΣRx			Σ(Rn - Rn) (R, - Rς)	(Rm – Rm)

$\overline{R_{m}}=\frac{-1.5}{4} : \overline{R_{x}}=\frac{-16}{4}$

Rm= -0.375: R = -4

Computing Standard Deviation of Market

σ' – Σ(RM - R2

= 1178.1875/4

= 294.55

Computing Covariance of Market and PE-Water Security Return

Courma

(Rm – Rm) (Rp - Ry 72

= 1087.25/4

=271.8125

Now, Calculating Beta of Security using Standard Deviation of Market and Covariance of Market and PE-Water Security Return:

Courm Br=

= 271.8125/294.55

Beta of Security= 0.923

So, PE- Waters Beta is closest to option(c) which is 0.927.