Question

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

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?

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