Economics Homework Help. University Of California Santa Barbara Security Market Line Case Study Questions
In this assignment, you are to estimate a security market line. You have current information about beta and expected annual return on 5 assets, as given in the following table:
|
Beta |
Expected return |
|
0.3 |
0.028 |
|
0.65 |
0.04 |
|
0.78 |
0.052 |
|
1.25 |
0.08 |
|
1.5 |
0.12 |
(Note that expected return is a decimal, so the first asset has an expected return of 2.8%.)
Answer the following in 500 words or less. The main text must be typed into GauchoSpace. You can also provide up to a total of 2 attached graphs, tables, and figures. If you provide more than 2 in total, only the first 2 will be looked at.
1. Run a regression line to determine the slope and y-intercept of the security market line. If you need help figuring out the regression line to run, you can refer to Chapter 11 and find the graph that shows this. You can use any computer program you want to run your regression.
2. Explain how to interpret your regression, including what the slope and y-intercept mean in terms we have used in this class. Calculate 95% confidence intervals for the slope and y-intercept.
3. Look up the current return on one-year Treasury bills/notes as your risk-free rate. Two good sources are https://www.treasury.gov/resource-center/data-chart-center/interest-rates/pages/textview.aspx?data=yield and http://online.wsj.com/mdc/public/page/mdc_bonds.html. In your report, please state your the website, source and the date cited.
4. Given the current risk-free rate, does the regression estimate of your risk-free rate match the actual current risk-free rate? Use confidence intervals to help answer this question.
