9.1 How do lending (borrowing) possibilities change the Markowitz model?
9.4 What is the market portfolio?
9.7 How can we measure a security’s contribution to the risk of the market portfolio?
9.10 What are the difficulties involved in estimating a security’s beta?
9.13 What is “the law of one price”?
9.21 What is a factor model?
9.25 How can APT be used in investment decisions?
Spreadsheet Exercises
9.1 Assume that the annual price data below is for General Foods and a broad stock market index, covering the period 2003–2018. Calculate the beta for General Foods. Use the ESTLIN function or the SLOPE function in the spreadsheet.
| Year | GF | S&P |
| 2018 | 40.58 | 1,211.92 |
| 2017 | 48.38 | 1,111.92 |
| 2016 | 40.96 | 879.82 |
| 2015 | 43.34 | 1,148.08 |
| 2014 | 55.38 | 1,320.28 |
| 2013 | 52.26 | 1,469.25 |
| 2012 | 59.49 | 1,229.23 |
| 2011 | 58.72 | 970.43 |
| 2010 | 45.93 | 740.74 |
| 2009 | 32.06 | 615.93 |
| 2008 | 21.93 | 459.27 |
| 2007 | 18.67 | 466.45 |
| 2006 | 17.24 | 435.71 |
| 2005 | 16.3 | 417.09 |
| 2004 | 9.29 | 330.22 |
| 2003 | 7.57 | 353.4 |
9.2 Given the information below, calculate the portfolio beta and the expected return on this two-stock portfolio using the CAPM.
If the weights were 50/50, would this increase or decrease the portfolio return?
If the market’s expected return had been 8 percent with the 60/40 weights, would this increase or decrease the portfolio return?
| Market’s Expected Return | 9% |
| Risk-Free Rate | 2.50% |
| Beta for Bateman Industries | 0.98 |
| Beta for Advanced Solar Arrays | 1.34 |
| Weight for Bateman | 60% |
| Weight for Solar Arrays | 40% |
| Portfolio Beta | |
| Expected Return on the Portfolio |
