Share Pacific Limited Atlantic Limited Market Index Standard deviation 15.60% 9.40% 4.20% Correlation coefficient with the market index 0.38 0.75 1.00 Estimated return for the next year 12.10% 15.50% 12% Assume a risk-free rate of 8% and a return on the market index of 12%. Calculate the beta coefficient of both shares.
Added by Marco N.
Step 1
10% = 8% + Beta x 4% Beta = (12.10% - 8%) / 4% = 1.025 For Atlantic Limited: Expected return = 8% + Beta x (12% - 8%) 15.50% = 8% + Beta x 4% Beta = (15.50% - 8%) / 4% = 1.875 Now that we have the expected returns and the correlation coefficients with the market Show more…
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