Question

MONTH		ZEMIN CORP.		MARKET
1		55​%		55​%
2		44​%		11​%
3		11​%		00​%
4		negative 4​%		negative 1​%
5		66​%		11​%
6		11​%		22​%

a. Given the​ holding-period returns shown, compute the average returns and the standard deviations for the Zemin Corporation and for the market.

b. If​ Zemin's beta is 1.43 and the​ risk-free rate is 9 ​percent, what would be an appropriate required return for an investor owning​ Zemin?

​(​Note: Because the returns of Zemin Corporation are based on monthly​ data, you will need to annualize the returns to make them compatible 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​ Zemin's historical average return compare with the return you believe to be a fair​ return, given the​ firm's systematic​ risk?

Answer 1