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E. Returns & Risks Bb Questions

Compare Average Returns

Was the average return on your stock higher or lower than the average return on VTI?

Compare Geometric Returns

Was the geometric return on your stock higher or lower than the geometric return on VTI?

Compare Geometric to Average Return

By what percent was the geometric return lower than the average return on your stock?

Compare Volatilities

Was the volatility or total risk of your stock higher or lower than the volatility of the diversified portfolio VTI, and by what percent?

Correlation Direction

Did your stock's returns move positively or negatively with the returns on VTI?

Correlation Magnitude

Was that correlation strong, moderate, or weak? (Interpret the absolute value of the correlation as strong if it was above .67, weak if below .33, and moderate if in between.)

Compare Beta Estimates

Is the beta from Finance.Yahoo.com's Key Statistics higher, lower, or the same as your calculation of beta?

Interpret Beta

Assuming that your calculated beta is accurate and that the CAPM market model is appropriate, approximately by what percent would your company's stock price be expected to react if the VTI market index falls by 2%?

Use CAPM

Assume that your calculated beta is accurate, that the CAPM market model is appropriate, that the risk-free rate is 4.5%, and that the market risk premium is 5%, what is the expected return on your stock?