Busn 233 CH 11

Roger G.
Ibbotson & Rex Sinquefield

Year Invested
Year Withdrawn
Years Invested
Mean
16.40%
11.70%
6.10%
3.80%
3.10%
1925
2008
83
Because Beg = 1
End^(1/Periods)-1
Geomean formula 1
(End/Beg)^(1/Periods)-1
Investment Category
Small Company Stocks
Large Company Stocks
Long Term Gov. Bonds
Treasury Bills
Inflation
$ Invested in
$ Withdrawn in
1925
2008
Geometric Mean
$1.00
$9,548.94
$1.00
$2,049.45
$1.00
$99.16
$1.00
$20.51
$1.00
$11.73
Geomean formula 2
(1+R1*1+R2*1+Rn)^(1/n)-1
Mean
Year
1926
1927
1928
1929
1930
1931
1932
1933
1934
1935
1936
1937
1938
1939
1940
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
Large Company
Stocks
11.14%
37.13%
43.31%
-8.91%
-25.26%
-43.86%
-8.85%
52.88%
-2.34%
47.22%
32.80%
-35.26%
33.20%
-0.91%
-10.08%
-11.77%
21.07%
25.76%
19.69%
36.46%
-8.18%
5.24%
5.10%
18.06%
30.58%
24.55%
18.50%
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
-1.10%
52.40%
31.43%
6.63%
-10.85%
43.34%
11.90%
0.48%
26.81%
-8.78%
22.69%
16.36%
12.36%
-10.10%
23.94%
11.00%
-8.47%
3.94%
14.30%
18.99%
-14.69%
-26.47%
37.23%
23.93%
-7.16%
6.57%
18.61%
32.50%
-4.92%
21.55%
22.56%
6.27%
31.73%
18.67%
5.25%
16.61%
31.69%
-3.10%
30.46%
7.62%
10.08%
1.32%
37.58%
22.96%
33.36%
28.58%
21.04%
2000
2001
2002
2003
2004
2005
2006
2007
2008
-9.10%
-11.89%
-22.10%
28.68%
10.88%
4.91%
15.79%
5.49%
-37.00%
Check
Roger G. Ibbotson & Rex Sinquefield

Year Invested
Year Withdrawn
Years Invested
Mean
16.40%
11.70%
6.10%
3.80%
3.10%
1925
2008
83
Because Beg = 1
End^(1/Periods)-1
Geomean formula 1
(End/Beg)^(1/Periods)-1
$ Invested in
$ Withdrawn in
1925
2008
Geometric Mean
$1.00
$9,548.94
11.67%
$1.00
$2,049.45
9.62%
$1.00
$99.16
5.69%
$1.00
$20.51
3.71%
$1.00
$11.73
3.01%
Investment Category
Small Company Stocks
Large Company Stocks
Long Term Gov. Bonds
Treasury Bills
Inflation
Geomean formula 2
(1+R1*1+R2*1+Rn)^(1/n)-1 Mean
9.511%
Year
1926
1927
1928
1929
1930
1931
1932
1933
1934
1935
1936
1937
1938
1939
1940
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
Large Company
Stocks
11.14%
37.13%
43.31%
-8.91%
-25.26%
-43.86%
-8.85%
52.88%
-2.34%
47.22%
32.80%
-35.26%
33.20%
-0.91%
-10.08%
-11.77%
21.07%
25.76%
19.69%
36.46%
-8.18%
5.24%
5.10%
18.06%
30.58%
24.55%
18.50%
-1.10%
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
52.40%
31.43%
6.63%
-10.85%
43.34%
11.90%
0.48%
26.81%
-8.78%
22.69%
16.36%
12.36%
-10.10%
23.94%
11.00%
-8.47%
3.94%
14.30%
18.99%
-14.69%
-26.47%
37.23%
23.93%
-7.16%
6.57%
18.61%
32.50%
-4.92%
21.55%
22.56%
6.27%
31.73%
18.67%
5.25%
16.61%
31.69%
-3.10%
30.46%
7.62%
10.08%
1.32%
37.58%
22.96%
33.36%
28.58%
21.04%
-9.10%
2001
2002
2003
2004
2005
2006
2007
2008
-11.89%
-22.10%
28.68%
10.88%
4.91%
15.79%
5.49%
-37.00%
Check
9548.94
2049.45
99.16
20.51
11.73
Expected Return and SD for 1 stock

State of economy
Recession
Normal
Irrational Exuberance
Estimated Stock A Estimated Stock B

Prob of
Return if State
Return if State
State
Occurs
Occurs
0.45
-0.05
-0.2
0.5
0.12
0.22
0.05
0.15
0.28
Individual Expected Return (Type of
Average)
R*Prob
R*Prob
E(RA)
E(RB)
E(RA)
E(RB)
Add
Expected Return based on Estimations both from p

estimates of future economic state
Individual Standard Deviation
(Measure of Volitility or Risk of
Stock)
(R-E(RA))^2*Prob (R-E(RB))^2*Prob
Add
Variance
SDA
SQRT
SDB
0
SDA
0 Total Risk
SDB
Stadard Deviation (Measure of total risk) based on

from past stock data and estimates of future ec
ased on Estimations both from past stock data and

timates of future economic states
(Measure of total risk) based on Estimations both

data and estimates of future economic states
Expected Return and SD for 1 stock

State of economy
Recession
Normal

Prob of
Return if State
Return if State
State
Occurs
Occurs
0.45
-0.05
-0.2
0.5
0.12
0.22
0.05
0.15
0.28
Add
Individual Expected Return (Type of

Average)
R*Prob
R*Prob
-0.0225
-0.09
0.06
0.11
0.0075
0.014
E(RA)
E(RB)
0.045
0.034
E(RA)
E(RB)
Expected Return based on Estimations both from p

estimates of future economic state
0.034
0.045
Add
Individual Standard Deviation

(Measure of Volitility or Risk of
Stock)
(R-E(RA))^2*Prob (R-E(RB))^2*Prob
0.00406125
0.0246402
0.0028125
0.017298
0.00055125
0.0030258
0.007425
0.044964 Variance
SDA
SDB
SQRT
0.08616844
SDA
0.212047165 Total Risk

SDB
0.08616844
0.212047165
Stadard Deviation (Measure of total risk) based on

from past stock data and estimates of future ec
ased on Estimations both from past stock data and

timates of future economic states
(Measure of total risk) based on Estimations both

data and estimates of future economic states
Expected Return and SD for portfolio

Stock
Invested
Weight
State of
economy
Recession
Normal
Boom
B
$10,000.00
Estimated Stock A
Prob of
Return if State
State
Occurs
0.45
-0.05
0.5
0.12
0.05
0.15
$15,000.00
Estimated Return for

Estimated Stock B Portfolio if State
Return if State
Occurs =
Occurs
RA*WA+RB*WB
(RIfStaeOccurs - E(RP))^2*Prob
-0.2
0.22
0.28
E(RP)
Variance of P
Standard Deviation of P
E(RP)
Add
SQRT
Expected Return and SD for portfolio

Stock
Invested
Weight
State of
economy
Recession
Normal
Boom
B
$10,000.00
0.4
$15,000.00
0.6

Prob of
Return if State
Return if State
State
Occurs
Occurs
0.45
-0.05
-0.2
0.5
0.12
0.22
0.05
0.15
0.28
-0.009
0.024
0.003
0.0384
-0.054
0.066
0.0084
Estimated Return for

Portfolio if State
Occurs =
RA*WA+RB*WB
(RIfStaeOccurs - E(RP))^2*Prob
-0.14
0.014321952
0.18
0.01002528
0.228
0.001797408
E(RP)
Variance of P
0.0384
0.02614464
0.161693043
E(RP)
0.0384
0.161693043
0.0384
0.161693043
Add
SQRT
Sep 30, 2004, Merck announced recall

VIOXX, stock went from $45 to $33.
Beg (Close Day Before)

End
Change
45.07
33
Sep 30, 2004, Merck announced recall

VIOXX, stock went from $45 to $33.
Beg (Close Day Before)

End
Change
45.07
33
-0.26781
Beta
Date
S&P 500 Adj
11/9/2007
1453.7
11/12/2007
1458.74
11/19/2007
1440.7
11/26/2007
1481.14
12/3/2007
1504.66
12/10/2007
1467.95
12/17/2007
1484.46
12/24/2007
1478.49
12/31/2007
1411.63
1/7/2008
1401.02
1/14/2008
1325.19
1/22/2008
1330.61
1/28/2008
1395.42
2/4/2008
1331.29
2/11/2008
1349.99
2/19/2008
1353.11
2/25/2008
1330.63
3/3/2008
1293.37
3/10/2008
1288.14
3/17/2008
1329.51
3/24/2008
1315.22
3/31/2008
1370.4
4/7/2008
1332.83
4/14/2008
1390.33
4/21/2008
1397.84
4/28/2008
1413.9
5/5/2008
1388.28
5/12/2008
1425.35
5/19/2008
1375.93
5/27/2008
1400.38
6/2/2008
1360.68
6/9/2008
1360.03
6/16/2008
1317.93
6/23/2008
1278.38
6/30/2008
1262.9
7/7/2008
1239.49
7/14/2008
1260.68
7/21/2008
1257.76
7/28/2008
1260.31
8/4/2008
1296.32
8/11/2008
1298.2
8/18/2008
1292.2
8/25/2008
1282.83
9/2/2008
1242.31
S & P Weely Returns WFMI Weely Returns

for Lat 4 Years
WFMI Close Adj for Lat 4 Years
42.51 Weekly Return S & P Weekly Return WFMI
44.4
39.94
42.15
42.19
39.77
41.73
40.77
37.16
36.96
34.57
37.01
40.17
38.81
38.55
36.23
34.64
33.58
30.72
32.18
32.01
33.4
31.76
32.67
30.92
34.68
32.5
28.81
27.38
28.75
28.25
26.93
26.09
24.44
22.51
21.04
21.38
22.52
21.42
18.65
19.69
18.44
18.31
18.12
9/8/2008
9/15/2008
9/22/2008
9/29/2008
10/6/2008
10/13/2008
10/20/2008
10/27/2008
11/3/2008
11/10/2008
11/17/2008
11/24/2008
12/1/2008
12/8/2008
12/15/2008
12/22/2008
12/29/2008
1/5/2009
1/12/2009
1/20/2009
1/26/2009
2/2/2009
2/9/2009
2/17/2009
2/23/2009
3/2/2009
3/9/2009
3/16/2009
3/23/2009
3/30/2009
4/6/2009
4/13/2009
4/20/2009
4/27/2009
5/4/2009
5/11/2009
5/18/2009
5/26/2009
6/1/2009
6/8/2009
6/15/2009
6/22/2009
6/29/2009
7/6/2009
7/13/2009
7/20/2009
7/27/2009
1251.7
1255.08
1213.27
1099.23
899.22
940.55
876.77
968.75
930.99
873.29
800.03
896.24
876.07
879.73
887.88
872.8
931.8
890.35
850.12
831.95
825.88
868.6
826.84
770.05
735.09
683.38
756.55
768.54
815.94
842.5
856.56
869.6
866.23
877.52
929.23
882.88
887
919.14
940.09
946.21
921.23
918.9
896.42
879.13
940.38
979.26
987.48
18.43
20.79
20.64
18
14.83
13.98
10.74
10.72
10.05
9.38
8.19
10.58
10.6
10.35
9.96
8.89
9.89
12.57
12.16
11.37
10.25
10.88
9.97
12.84
12.15
12.08
14.38
15.37
17.97
18.64
18.36
18.48
19.74
20.93
22.17
19.61
18.9
18.87
21.16
20.44
19.27
19.2
17.97
19.25
21.87
23.73
24.19
8/3/2009
8/10/2009
8/17/2009
8/24/2009
8/31/2009
9/8/2009
9/14/2009
9/21/2009
9/28/2009
10/5/2009
10/12/2009
10/19/2009
10/26/2009
11/2/2009
11/9/2009
11/16/2009
11/23/2009
11/30/2009
12/7/2009
12/14/2009
12/21/2009
12/28/2009
1/4/2010
1/11/2010
1/19/2010
1/25/2010
2/1/2010
2/8/2010
2/16/2010
2/22/2010
3/1/2010
3/8/2010
3/15/2010
3/22/2010
3/29/2010
4/5/2010
4/12/2010
4/19/2010
4/26/2010
5/3/2010
5/10/2010
5/17/2010
5/24/2010
6/1/2010
6/7/2010
6/14/2010
6/21/2010
1010.48
1004.09
1026.13
1028.93
1016.4
1042.73
1068.3
1044.38
1025.21
1071.49
1087.68
1079.6
1036.19
1069.3
1093.48
1091.38
1091.49
1105.98
1106.41
1102.47
1126.48
1115.1
1144.98
1136.03
1091.76
1073.87
1066.19
1075.51
1109.17
1104.49
1138.7
1149.99
1159.9
1166.59
1178.1
1194.37
1192.13
1217.28
1186.69
1110.88
1135.68
1087.69
1089.41
1064.88
1091.6
1117.51
1076.76
28.42
28.1
28.78
29.11
27.65
28.43
28.6
28.77
29.21
31.67
33.74
33.36
32.06
28.25
27.49
26.36
25.9
26.2
26.67
26.99
28.41
27.45
27.96
27.95
28.45
27.22
27.38
29.75
33.66
35.49
36.11
36.3
35.83
35.41
36.91
38.8
39.11
40.2
39.02
36.68
40.83
39.24
40.43
38.61
39.38
40.36
38.69
6/28/2010
7/6/2010
7/12/2010
7/19/2010
7/26/2010
8/2/2010
8/9/2010
8/16/2010
8/23/2010
8/30/2010
9/7/2010
9/13/2010
9/20/2010
9/27/2010
10/4/2010
10/11/2010
10/18/2010
10/25/2010
11/1/2010
11/8/2010
11/15/2010
11/22/2010
1022.58
1077.96
1064.88
1102.66
1101.6
1121.64
1079.25
1071.69
1064.59
1104.51
1109.55
1125.59
1148.67
1146.24
1165.15
1176.19
1183.08
1183.26
1225.85
1199.21
1199.73
1189.4
35.02
36.66
37.21
38.77
37.97
36.48
36.42
36.72
35.7
36.66
35.47
37.09
37.07
37.07
34.57
38.3
39.89
39.75
45.49
46.86
45.71
47.01
Slope
Amount of systematic risk
Correllation*SDWFMI/SDM
Correlation tells us the strength and direction of the line (between -1 and 1)
SDWFMI/SDM = Amount of Standard Deviation of WFMI per 1 unit of Market Standard Deviation
Together they say direction and strength of Systematic Risk for WMFI
Beta
Beta For WFMI
WFMI Weely Returns for Lat 4 Years
Date
S&P 500 Adj WFMI Close Adj
11/9/2007
1453.7
42.51
11/12/2007
1458.74
44.4
11/19/2007
1440.7
39.94
11/26/2007
1481.14
42.15
12/3/2007
1504.66
42.19
12/10/2007
1467.95
39.77
12/17/2007
1484.46
41.73
12/24/2007
1478.49
40.77
12/31/2007
1411.63
37.16
1/7/2008
1401.02
36.96
1/14/2008
1325.19
34.57
1/22/2008
1330.61
37.01
1/28/2008
1395.42
40.17
2/4/2008
1331.29
38.81
2/11/2008
1349.99
38.55
2/19/2008
1353.11
36.23
2/25/2008
1330.63
34.64
3/3/2008
1293.37
33.58
3/10/2008
1288.14
30.72
3/17/2008
1329.51
32.18
3/24/2008
1315.22
32.01
3/31/2008
1370.4
33.4
4/7/2008
1332.83
31.76
4/14/2008
1390.33
32.67
4/21/2008
1397.84
30.92
4/28/2008
1413.9
34.68
5/5/2008
1388.28
32.5
5/12/2008
1425.35
28.81
5/19/2008
1375.93
27.38
5/27/2008
1400.38
28.75
6/2/2008
1360.68
28.25
6/9/2008
1360.03
26.93
6/16/2008
1317.93
26.09
6/23/2008
1278.38
24.44
6/30/2008
1262.9
22.51
7/7/2008
1239.49
21.04
7/14/2008
1260.68
21.38
7/21/2008
1257.76
22.52
7/28/2008
1260.31
21.42
8/4/2008
1296.32
18.65
8/11/2008
1298.2
19.69
8/18/2008
1292.2
18.44
8/25/2008
1282.83
18.31
9/2/2008
1242.31
18.12
S & P Weely Returns WFMI Weely Returns

for Lat 4 Years
for Lat 4 Years
Weekly Return S & P Weekly Return WFMI
0.003467015
0.044460127
-0.012366837
-0.10045045
0.028069688
0.055332999
0.01587966
0.000948992
-0.024397538
-0.057359564
0.011246977
0.049283379
-0.004021664 1.2
-0.023005032
-0.045221814
-0.088545499
1
-0.007516134
-0.005382131
0.8
-0.054124852
-0.064664502
0.00408998 0.6
0.070581429
0.048706984
0.085382329
-0.04595749 0.4
-0.033856112
0.014046526 0.2
-0.006699304
0.002311128
-0.060181582
0
-0.016613579
-0.043886282
0
0.2
0.4
-0.028001774
-0.030600462
-0.0040437
-0.085169744S & P Weely Returns for Lat 4 Years
0.032116074
0.047526042
-0.010748321
-0.005282784
0.041954958
0.04342393
-0.027415353
-0.049101796
0.043141286
0.028652393
0.005401595
-0.053565963
0.011489155
0.12160414
-0.018120093
-0.062860438
0.026702106
-0.113538462
-0.034672186
-0.049635543
0.017769799
0.050036523
-0.028349448
-0.017391304
-0.000477702
-0.046725664
-0.0309552
-0.031191979
-0.030009181
-0.063242622
-0.012109076
-0.078968903
-0.018536701
-0.065304309
0.017095741
0.016159696
-0.00231621
0.053320861
0.002027414
-0.048845471
0.028572335
-0.129318394
0.001450259
0.055764075
-0.004621784
-0.063484002
-0.0072512
-0.007049892
-0.031586414
-0.010376843
9/8/2008
9/15/2008
9/22/2008
9/29/2008
10/6/2008
10/13/2008
10/20/2008
10/27/2008
11/3/2008
11/10/2008
11/17/2008
11/24/2008
12/1/2008
12/8/2008
12/15/2008
12/22/2008
12/29/2008
1/5/2009
1/12/2009
1/20/2009
1/26/2009
2/2/2009
2/9/2009
2/17/2009
2/23/2009
3/2/2009
3/9/2009
3/16/2009
3/23/2009
3/30/2009
4/6/2009
4/13/2009
4/20/2009
4/27/2009
5/4/2009
5/11/2009
5/18/2009
5/26/2009
6/1/2009
6/8/2009
6/15/2009
6/22/2009
6/29/2009
7/6/2009
7/13/2009
7/20/2009
7/27/2009
1251.7
1255.08
1213.27
1099.23
899.22
940.55
876.77
968.75
930.99
873.29
800.03
896.24
876.07
879.73
887.88
872.8
931.8
890.35
850.12
831.95
825.88
868.6
826.84
770.05
735.09
683.38
756.55
768.54
815.94
842.5
856.56
869.6
866.23
877.52
929.23
882.88
887
919.14
940.09
946.21
921.23
918.9
896.42
879.13
940.38
979.26
987.48
18.43
20.79
20.64
18
14.83
13.98
10.74
10.72
10.05
9.38
8.19
10.58
10.6
10.35
9.96
8.89
9.89
12.57
12.16
11.37
10.25
10.88
9.97
12.84
12.15
12.08
14.38
15.37
17.97
18.64
18.36
18.48
19.74
20.93
22.17
19.61
18.9
18.87
21.16
20.44
19.27
19.2
17.97
19.25
21.87
23.73
24.19
0.0075585
0.002700328
-0.033312618
-0.093993917
-0.181954641
0.045962056
-0.067811387
0.104907787
-0.038978065
-0.061977035
-0.083889659
0.12025799
-0.022505133
0.004177748
0.009264206
-0.016984277
0.067598533
-0.044483795
-0.045184478
-0.021373453
-0.007296112
0.051726643
-0.048077366
-0.068683179
-0.045399649
-0.070345128
0.107070737
0.015848259
0.061675384
0.032551413
0.016688427
0.015223685
-0.003875345
0.01303349
0.058927432
-0.049880008
0.004666546
0.036234498
0.022793046
0.006510015
-0.026400059
-0.002529227
-0.024464033
-0.019287834
0.069671152
0.041344988
0.008394093
0.017108168
0.128052089
-0.007215007
-0.127906977
-0.176111111
-0.057316251
-0.231759657
-0.001862197
-0.0625
-0.066666667
-0.126865672
0.291819292
0.001890359
-0.023584906
-0.037681159
-0.107429719
0.112485939
0.270980789
-0.032617343
-0.064967105
-0.098504837
0.061463415
-0.083639706
0.287863591
-0.053738318
-0.005761317
0.190397351
0.068845619
0.169160703
0.037284363
-0.015021459
0.006535948
0.068181818
0.060283688
0.059245103
-0.115471358
-0.036206017
-0.001587302
0.121356651
-0.034026465
-0.057240705
-0.00363259
-0.0640625
0.071229827
0.136103896
0.085048011
0.019384745
8/3/2009
8/10/2009
8/17/2009
8/24/2009
8/31/2009
9/8/2009
9/14/2009
9/21/2009
9/28/2009
10/5/2009
10/12/2009
10/19/2009
10/26/2009
11/2/2009
11/9/2009
11/16/2009
11/23/2009
11/30/2009
12/7/2009
12/14/2009
12/21/2009
12/28/2009
1/4/2010
1/11/2010
1/19/2010
1/25/2010
2/1/2010
2/8/2010
2/16/2010
2/22/2010
3/1/2010
3/8/2010
3/15/2010
3/22/2010
3/29/2010
4/5/2010
4/12/2010
4/19/2010
4/26/2010
5/3/2010
5/10/2010
5/17/2010
5/24/2010
6/1/2010
6/7/2010
6/14/2010
6/21/2010
1010.48
1004.09
1026.13
1028.93
1016.4
1042.73
1068.3
1044.38
1025.21
1071.49
1087.68
1079.6
1036.19
1069.3
1093.48
1091.38
1091.49
1105.98
1106.41
1102.47
1126.48
1115.1
1144.98
1136.03
1091.76
1073.87
1066.19
1075.51
1109.17
1104.49
1138.7
1149.99
1159.9
1166.59
1178.1
1194.37
1192.13
1217.28
1186.69
1110.88
1135.68
1087.69
1089.41
1064.88
1091.6
1117.51
1076.76
28.42
28.1
28.78
29.11
27.65
28.43
28.6
28.77
29.21
31.67
33.74
33.36
32.06
28.25
27.49
26.36
25.9
26.2
26.67
26.99
28.41
27.45
27.96
27.95
28.45
27.22
27.38
29.75
33.66
35.49
36.11
36.3
35.83
35.41
36.91
38.8
39.11
40.2
39.02
36.68
40.83
39.24
40.43
38.61
39.38
40.36
38.69
0.023291611
-0.006323727
0.021950224
0.002728699
-0.012177699
0.025905155
0.024522168
-0.022390714
-0.018355388
0.045141971
0.0151098
-0.007428655
-0.040209337
0.031953599
0.022612924
-0.001920474
0.00010079
0.013275431
0.000388795
-0.003561067
0.02177837
-0.010102265
0.026795803
-0.00781673
-0.038969041
-0.016386385
-0.007151704
0.008741406
0.03129678
-0.004219371
0.030973572
0.009914815
0.008617466
0.005767739
0.009866363
0.013810373
-0.001875466
0.021096692
-0.025129798
-0.063883575
0.022324644
-0.042256622
0.001581333
-0.022516775
0.025092029
0.023735801
-0.036464998
0.174865647
-0.011259676
0.024199288
0.011466296
-0.050154586
0.028209765
0.005979599
0.005944056
0.015293709
0.084217734
0.065361541
-0.011262596
-0.038968825
-0.118839676
-0.026902655
-0.041105857
-0.017450683
0.011583012
0.017938931
0.0119985
0.052612079
-0.033790919
0.018579235
-0.000357654
0.017889088
-0.043233743
0.005878031
0.086559533
0.131428571
0.054367201
0.01746971
0.0052617
-0.012947658
-0.011722021
0.042360915
0.051205635
0.007989691
0.02787011
-0.029353234
-0.059969247
0.113140676
-0.038941954
0.030326198
-0.045016077
0.01994302
0.024885729
-0.041377602
6/28/2010
7/6/2010
7/12/2010
7/19/2010
7/26/2010
8/2/2010
8/9/2010
8/16/2010
8/23/2010
8/30/2010
9/7/2010
9/13/2010
9/20/2010
9/27/2010
10/4/2010
10/11/2010
10/18/2010
10/25/2010
11/1/2010
11/8/2010
11/15/2010
11/22/2010
1022.58
1077.96
1064.88
1102.66
1101.6
1121.64
1079.25
1071.69
1064.59
1104.51
1109.55
1125.59
1148.67
1146.24
1165.15
1176.19
1183.08
1183.26
1225.85
1199.21
1199.73
1189.4
35.02
36.66
37.21
38.77
37.97
36.48
36.42
36.72
35.7
36.66
35.47
37.09
37.07
37.07
34.57
38.3
39.89
39.75
45.49
46.86
45.71
47.01
-0.05031762
0.054157132
-0.012134031
0.035478176
-0.000961312
0.018191721
-0.037792875
-0.007004864
-0.00662505
0.037498004
0.004563109
0.014456311
0.020504802
-0.00211549
0.016497418
0.009475175
0.005857897
0.000152145
0.03599378
-0.02173186
0.000433619
-0.008610271
-0.094856552
0.046830383
0.015002728
0.041924214
-0.020634511
-0.039241506
-0.001644737
0.008237232
-0.027777778
0.026890756
-0.032460447
0.045672399
-0.000539229
0
-0.067439978
0.107897021
0.04151436
-0.003509652
0.144402516
0.030116509
-0.024541187
0.028440166
Slope
1.106121838 Amount of systematic risk
Correllation*SDWFMI/SDM
1.106121838
Correlation tells us the strength and direction of the line (between -1 and 1)
Beta
SDWFMIFor
/SDM WFMI
= Amount of Standard Deviation of WFMI per 1 unit of Market Standard Deviation
Together they say direction and strength of Systematic Risk for WMFI
0.4
0.6
0.8
S & P Weely Returns for Lat 4 Years
1.2
Beta For Porfolio

Stock
W
X
Y
Z
Expected
Return for P
Portfolio Beta
Weights =
Invested/(Total Expected Return Beta
Invested)
E(R)*W
B*W
Amount Invetsed Expected Return Beta

$2,000.00
8.00%
0.80
$4,000.00
12.00%
0.95
$4,000.00
15.00%
1.10
$6,000.00
18.00%
1.40
$16,000.00
Total
Beta For Porfolio

Stock
W
X
Y
Z
Expected
Return for P
Portfolio Beta
Amount Invetsed Expected Return Beta

$2,000.00
8.00%
0.80
$4,000.00
12.00%
0.95
$4,000.00
15.00%
1.10
$6,000.00
18.00%
1.40
$16,000.00
14.50%
1.138
Weights =
Invested/(Total Expected Return Beta
Invested)
E(R)*W
B*W
0.125
1.00%
0.1
0.25
3.00%
0.2375
0.25
3.75%
0.275
0.375
6.75%
0.525
Total
14.50%
1.1375
Risk Reward Ratio

Rf
Market Risk Premium = E(RM) - Rf
Goal: Are stocks priced correctly?
Stock
A
Beta
E(RA)
Reward To Risk Ratio => (E(RA) - Rf)/BA

Stock
Beta
E(RB)
Reward To Risk Ratio => (E(RB) - Rf)/BB
2.00%
9.00%
1.2
12.50%
B
0.6
9.00%
Risk Reward Ratio

Rf
Stock
A
Beta
E(RA)
Reward To Risk Ratio => (E(RA) - Rf)/BA

Stock
Beta
E(RB)
Reward To Risk Ratio => (E(RB) - Rf)/BB
2.00%
9.00%
1.2
12.50%
Stock A is offering a 8.75% return for 1 unit of Systemati

Market Risk Premium is 0.09, we can see that A is not off
enough. In a competitive market the price of this stock wi
theory, this stock will bid down until the return is equal to
in the market.
8.75%
B
0.6
9.00%
Stock B is offering a 11.67% return for 1 unit of Systemat

Market Risk Premium is 0.09, we can see that B is offering
competitive market the price of this stock should be bid u
stock should be bid up until the return is equal to the retu
market.
11.67%
urn for 1 unit

Market Risk
that A is not
a competitive
k will be bid
urn for 1 unit

Market Risk
e that B is
ompetitive
should be bid
CAPM
Rf
Stock
A
Beta
E(RA)
CAPM => E(RA) = Rf + (E(RM)-Rf)*BA

Stock
Beta
E(RB)
CAPM => E(RB) = Rf + (E(RM)-Rf)*BB
2.00%
9.00%
1.2
12.50%
B
0.6
9.00%
Beta of 1, asset should earn 2.00% + 9.00%*1 = 11.00%Beta of 2, as
2 Beta of 2, asset should earn 2.00% + 9.00%*2 = 20.00%

SML Slope = (9.00% Market Risk Premium) / (1 Beta) = 'going rate',
The given rate of 9.00% is too high (above the SML) and therefore is
There is more reward than the model suggests there should be at th
% + 9.00%*1 = 11.00%Beta of 2, asset should earn 2.00% + 9.00%*2 = 20.00%
% + 9.00%*2 = 20.00%
% + 9.00%*1 = 11.00%
remium) / (1 Beta) = 'going rate', given Rf = 2.00%.
h (above the SML) and therefore is priced too low - High Rate / Low Price.
odel suggests there should be at the given risk level. If we believed our model, we would buy.
CAPM
Rf
2.00%

Stock
A
Beta
E(RA)
9.00%
CAPM => E(RA) = Rf + (E(RM)-Rf)*BA

Stock
Beta
E(RB)
CAPM => E(RB) = Rf + (E(RM)-Rf)*BB
Expected Return using CAPM is higher than the Expected R

Expected Return calculated using CAMP prices the risk (sy
12.80%. This means that the given rate of 12.50% is below
means the stock is over valued - Low Rate / High Price. Th
reward for the given risk level. Not buying
12.80%
B
0.6
9.00%
Expected Return using CAPM is lower than the Expected R

Expected Return calculated using CAPM prices the risk (sy
7.40%.The given rate of 9.00% is too high (above the SML
priced too low - High Rate / Low Price. There is more rewa
suggests there should be at the given risk level. If we believ
would buy.
7.40%
X LinePremium)
Up
Y/
Line
X Line Over
SML Slope = (9.00% E(RM)
Market Risk
(1UpBeta)
=
0
2.00%
1
0
0
'going
0.1rate', given
2.90% Rf = 2.00%.
1
0.02
0.1
Beta
35.00%
30.00%
Asset Expected Return E(RA)
1.2
12.50%
25.00%
20.00%
Undervalued, 0.6, 9.00%
15.00%
10.00%
5.00%
0.00%
0
0.5
0.2
3.80%
0.3
4.70%
0.4
5.60%
0.5
6.50%
0.6
7.40%
0.7
8.30%
0.8
9.20%
0.9
10.10%
1
11.00%
1.1
11.90%
1.2
12.80%
1.3
13.70%
Overvalued, 1.2, 12.50%
1.4
14.60%
1.5
15.50%
1.6
16.40%
17.30%
1 1.7
1.5
2
1.8
18.20%
Asset Beta BA
1.9
19.10%
2
20.00%
1
0.029
0.2
1
0.038
0.3
1
0.047
0.4
1
0.056
0.5
1
0.065
0.6
1
0.074
0.7
1
0.083
0.8
1
0.092
0.9
1
0.101
1
0.11
Beta1of 1, asset
should earn 2.00% +
9.00%*1 = 11.00%
Beta of 2, asset should earn 2.00% +
9.00%*2 = 20.00%
2.5
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
2.9
3
20.90%
21.80%
22.70%
23.60%
24.50%
25.40%
26.30%
27.20%
28.10%
29.00%
s higher than
he Expected
prices the risk
is means that
ow the SML,
s lower than
he Expected
prices the risk
given rate of
e SML) and
gh Rate / Low
eta) =
Beta of 1, asset should earn 2.00% + 9.00%*1 = 11.00%Beta of 2, as

SML Slope = (9.00% Market Risk Premium) / (1 Beta) = 'going rate',
The given rate of 9.00% is too high (above the SML) and therefore is
There is more reward than the model suggests there should be at th
Y Line OverX Line Up Y Line Up X Line OverY Line OverBelow X Below Y Above X Above Y
11.00%
2
0
0
20.00%
1.2
12.50%
0.6
9.00%
11.00%
2
2.00%
0.1
20.00%
11.00%
2
2.90%
0.2
20.00%
11.00%
2
3.80%
0.3
20.00%
11.00%
2
4.70%
0.4
20.00%
11.00%
2
5.60%
0.5
20.00%
11.00%
2
6.50%
0.6
20.00%
11.00%
2
7.40%
0.7
20.00%
11.00%
2
8.30%
0.8
20.00%
11.00%
2
9.20%
0.9
20.00%
11.00%
2
10.10%
1
20.00%
2
11.00%
1.1
20.00%
hould earn 2.00% +
2
11.90%
1.2
20.00%
2
12.80%
1.3
20.00%
hould earn 2.00% +
2
13.70%
1.4
20.00%
2
14.60%
1.5
20.00%
2
15.50%
1.6
20.00%
2
16.40%
1.7
20.00%
3.5
2
17.30%
1.8
20.00%
2
18.20%
1.9
20.00%
2
19.10%
2
20.00%
20.00%
% + 9.00%*1 = 11.00%Beta of 2, asset should earn 2.00% + 9.00%*2 = 20.00%
% + 9.00%*2 = 20.00%
% + 9.00%*1 = 11.00%
remium) / (1 Beta) = 'going rate', given Rf = 2.00%.
h (above the SML) and therefore is priced too low - High Rate / Low Price.
odel suggests there should be at the given risk level. If we believed our model, we would buy.
CAPM ==> E(RA) = RF + (E(RM) - Rf)*BA

Rf
Market Risk Premium =
E(RM) - Rf
Stock
A
B
C
D
E
Estimate of E(RD)
2.00%
9.00%
Beta
CAPM Pricing (Return)

-0.5
0.5
1
1.5
2
<<== CAPM
14.50%
Market thinks Stock D should be at 0.00%. If your calculations of E(RD) shows 14.50%,
would you buy?
No.
If others came to the same conclusion, buying and selling would lead to a drop in price and
a rise in return (price and return move in opposite directions).
Not buy.
Risk Reward Ratio = (E(RA)- Rf)/BA

Not buy
CAPM ==> E(RA) = RF + (E(RM) - Rf)*BA

Rf
Market Risk Premium =
E(RM) - Rf
Stock
A
B
C
D
E
Estimate of E(RD)
2.00%
9.00%
Beta
-0.5
0.5
1
1.5
2
CAPM Pricing (Return)

-2.500%
6.500%
11.00%
15.500% <<== CAPM
20.0%
14.50%
Market thinks Stock D should be at 15.50%. If your calculations of E(RD) shows 14.50%,
would you buy?
No.
If others came to the same conclusion, buying and selling would lead to a drop in price and
a rise in return (price and return move in opposite directions).
Not buy.
Risk Reward Ratio

0.083333 Not buy
1
2
3a
3b
3c
3d
3e
3f
4a
4b
4c
4d
4e
10
Systematic
Unsystematic
Unclear
Both
Total Risk of buying an asset comes from the risk that new information will become available and change the
price of the asset. Think of what happens when it is announced that that day after thanksgiving retail sales are
very low (or high), or when a law suit against a company for liability is announced, or when a new innovative
project is announced, or a new contact is signed (think of Boeing), or when inflation is higher than expected, or
interest rates will be lowered by more than expected. Some of this new information affects just a few stocks and
some affects many stocks. When the information affects just a few stocks (or just one), this is called Asset
Specific Risk, and when the new information affects many stocks, this is called Systematic Risk (whole system is
affected). Asset specific risk (unsystematic, diversifiable risk) is the risk that unexpected news will occur that
affects the price of just a single stock, or group of stocks. When a portfolio of stocks are held, the assets specific
risks will tend to wash each other out, meaning that when one stock goes up, another will go down. Examples of
asset specific risks are things like a new product/technology announcement or a law suit announcement or new
information about the supply or demand of a commodity. Systematic risk is the risk that unexpected news will
occur that affects a large number of stocks, like government CPI or interest rate information. Since this sort of
unexpected information affects most stocks, when it comes out, all the assets in the portfolio tend to move and
so this risk can not be diversified away by holding many different stocks. By holding many different types of
If this drop in growth from 5% to 2% is unexpected new information, security prices will tend to fall. If the drop
had been anticipated and was already "priced into the stock market" or "discounted", then there would be no
Systematic
Unsystematic
Both. Industries like Airlines and Trucking may be affected more heavily than mots other types of companies
Unsystematic
Unsystematic
Systematic
It would tend to cause stocks in general and Big Widget Corp in particual to move. Probably move down because
when inflation goes up unexpctedly, stuff then costs more and expenses would tend to be higher.
If the information in the report was fully anticipated, then all the info would already be "discounted" into prices
and so price of stock would not move. The return would be equal to the expected return. There is no new asset
This is not new unexpected system information and so it would not tend to "move the market" (cause prices to
This is asset specific risk and would make the price change. This event would create uncertainly about the future
direction of the firm. Uncertainty about the future is a risk that would demand more return, and when return
This may only have a small systematic affect because if it was debated for months, people probably already have
the tax change "discounted" into market prices.
No - since risky assets are defined as assets that have systematic risk, it is not possible. The expected return of an
asset with a Beta of zero is the Risk Free Rate, like a T-bill rate. A negative Beta is possible because there are
asset returns that move in the opposite direction of the market as a whole. Companies that do well in economic
downturns like liquidation companies or pawn shops or Reposition Companies. Companies like this would earn a
negative Risk Premium. E(Ri) - Rf = (a negative number). Negative because the return would be less than the Risk
Past numbers are relevant because when estimating the unknown future, the past is usually the best info we
have for making predictions. That said, if the future events are not similar to past events, then the model used
may give us the wrong answer. In regards to Accounting information, for publically traded companies where
stock holders are "outside the company" and managers are "inside the company", accounting information is
1
2
3a
3b
3c
3d
3e
3f
4a
4b
4c
4d
4e
5
6
7
8
9
10
Systematic
Unsystematic
Unclear
Both
Stock
Invested
E(Ri)
Weight
E(RP)
1500
2600
0.1
0.16
0.365854 0.634146
Stock
Invested
E(Ri)
Weight
E(RP)
1500
2600
0.1
0.16
0.365854 0.634146
0.138049
Stock
E(Ri)
Weight
E(RP)
B
0.1
0.25
C
0.13
0.4
0.15
0.35
Stock
E(Ri)
Weight
E(RP)
B
0.1
0.25
0.1295
C
0.13
0.4
0.15
0.35
State of
Economy
Recession
Normal
Boom
Prob. Og State of
Economy
Stock A Return Stock B Return

if State Occurs if State Occurs
0.2
0.01
-0.25
0.55
0.09
0.15
0.25
0.14
0.38
E(Ri)
SDi
E(Ri)
SDi
Add
SQRT
State of
Economy
Recession
Normal
Boom
Prob. Og State of
Economy
Stock A Return Stock B Return

if State Occurs if State Occurs
0.2
0.01
-0.25
0.55
0.09
0.15
0.25
0.14
0.38
E(Ri)
0.002
0.0495
0.035
0.0865
SDi
0.00117
6.74E-06
0.000716
0.001893
0.043506
E(Ri)
SDi
0.0865
0.043506
-0.05
0.0825
0.095
0.1275
0.022646
0.002218
0.021536
0.0464 Add
0.215406 SQRT
0.1275
0.211468
Weight
State of
Economy
Bust
Poor
Good
Boom
0.3
Prob. Of State of
Economy
Stock A Return
if State Occurs
0.05
0.35
0.45
0.15
0.4
Stock B Return
if State Occurs
-0.11
0.01
0.12
0.35
-0.25
0.02
0.1
0.45
E(RP)
E(RP)
E(RP)
E(RP)
0.3
Stock C Return
if State Occurs
-0.09
-0.05
0.17
0.33
1
Portfolio Return
if State Ocurrs
Portfolio
Return if
State Ocurrs
SDP
SDP
(Portfolio Return E(RP))^2*Pro
Total
SQRT
Weight
State of
Economy
Bust
Poor
Good
Boom
0.3
Prob. Of State of
Economy
Stock A Return
if State Occurs
0.05
0.35
0.45
0.15
0.4
Stock B Return
if State Occurs
-0.11
0.01
0.12
0.35
-0.25
0.02
0.1
0.45
E(RP)
E(RP)
E(RP)
E(RP)
0.3
Stock C Return
if State Occurs
-0.09
-0.05
0.17
0.33
0.10535
0.10535
0.10535
0.10535
1
Portfolio Return
if State Ocurrs
-0.16
-0.004
0.127
0.384
Portfolio
Return if
State Ocurrs
-0.16
-0.004
0.127
0.384
SDP
SDP
(Portfolio Return E(RP))^2*Pro

0.003520531
0.004185098
0.000210925
0.011646873
0.019563428 Total
0.139869323 SQRT
0.139869323
Stock
Weight
Beta
BetaP
R
0.25
0.85
S
0.2
0.91
T
0.45
1.31
0.1
1.76
Stock
Weight
Beta
BetaP
R
0.25
0.85
1.16
S
0.2
0.91
T
0.45
1.31
0.1
1.76
Stock
Weight
E(R)
Beta
BS1
E(RM)
RF
S1
S2
0.333333 0.333333 0.333333
1
0 ??
1.31
1 = BS1 * WS1 + BS2 * WS2

1 = BS1 *1/3 + 1.31 * 1/3
3/1*(1 - 1.31 * 1/3) = BS1
E(Ri) = Rf + (E(RM)-Rf)*Bi
(E(Ri) - Rf)/(E(RM)-Rf) = Bi
Stock
Weight
E(R)
Beta
BS1
E(RM)
RF
S1
S2
0.333333 0.333333 0.333333
1
0 ??
1.31
1 = BS1 * WS1 + BS2 * WS2

1 = BS1 *1/3 + 1.31 * 1/3
1.69 3/1*(1 - 1.31 * 1/3) = BS1
E(Ri) = Rf + (E(RM)-Rf)*Bi
(E(Ri) - Rf)/(E(RM)-Rf) = Bi
Beta of asset
E(RM)
Rf
E(Ri)
1.25
0.117
0.045
E(Ri) = Rf + (E(RM) - Rf)*Bi
Beta of asset
E(RM)
Rf
E(Ri)
1.25
0.117
0.045
0.135 E(Ri) = Rf + (E(RM) - Rf)*Bi
E(RM) - Rf
Rf
E(Ri)
Bi = (E(Ri)-Rf)/(E(RM)-Rf)
0.069
0.055
0.142
E(RM) - Rf
Rf
E(Ri)
Bi = (E(Ri)-Rf)/(E(RM)-Rf)
0.069
0.055
0.142
1.26087
Beta of asset
E(RM) - Rf
Rf
E(Ri)
0.85
(E(Ri) - Rf)/Bi + Rf = E(RM)
0.055
0.11
Beta of asset
E(RM) - Rf
Rf
E(Ri)
0.85
0.119706 (E(Ri) - Rf)/Bi + Rf = E(RM)
0.055
0.11
Beta of asset
E(RM)
Rf
E(Ri)
1.15
0.109
(E(Ri) - Bi * E(RM))/(1 - Bi)
0.119
Beta of asset
E(RM)
Rf
E(Ri)
1.15
0.109
0.042333 (E(Ri) - Bi * E(RM))/(1 - Bi)
0.119
a Stock
Beta
E(Ri)
Rf
A
1.2
0.118
0.038
Weight of Stock A
E(RP)
Weight of Stock Rf
0.5
0.5
BP
BP = Bi * Wi + Brf * Wrf
0.8 = 1.2 * Wi + 0 * (1-Wi)
0.8 / 1.2 = Wi
Wrf
0.8

E(RP) using CAPM
c E(RP)
0.11
d BP
2.4 = 1.2 * Wi + 0 * (1-Wi)
2.4 / 1.2 = Wi
Wrf
E(RP) = Ri * Wi + Rrf * Wrf

.11 = .118 * Wi + .038 * (1 - Wi)
.11 = .118 * Wi + .038 - .038Wi
(.11 -.038) / (.118 - .038) = Wi
2.4
Invested 200% in stock because of borrowing

Invested -100% in Rf because of borrowing. Represents borrowing at Ris
2.4 = 1.2 * 2
epresents borrowing at Risk Free Rate
a Stock
Beta
E(Ri)
Rf
A
1.2
0.118
0.038
Weight of Stock A

E(RP) using CAPM
E(RP)
Weight of Stock Rf
0.5
0.5
BP
0.8 = 1.2 * Wi + 0 * (1-Wi)
0.8 / 1.2 = Wi
Wrf
0.8
0.078
0.666666667
0.333333333
c E(RP)
0.11
0.9
d BP
2.4 = 1.2 * Wi + 0 * (1-Wi)
2.4 / 1.2 = Wi
Wrf
E(RP) = Ri * Wi + Rrf * Wrf

.11 = .118 * Wi + .038 * (1 - Wi)
.11 = .118 * Wi + .038 - .038Wi
(.11 -.038) / (.118 - .038) = Wi
2.4
2 Invested 200% in stock because of borrowing

-1 Invested -100% in Rf because of borrowing. Represents borrowing at Ris
2.4 = 1.2 * 2
epresents borrowing at Risk Free Rate
Asset
W
E(RW)
BW
Rf
Risk Premium = E(RM) - Rf
E(RM) - Rf
0.13
1.25
0.045
Percentage of Portfolio in Portfolio

W
Beta
0
0.25
0.5
0.75
1
1.25
1.5
(E(Ri) - Rf)/Bi = E(RM) - Rf
Portfolio
Expected
Return
Asset
W
E(RW)
BW
Rf
Risk Premium = E(RM) - Rf
E(RM) - Rf
0.13
1.25
0.045
0.068 (E(Ri) - Rf)/Bi = E(RM) - Rf
0.068
Portfolio
Percentage of Portfolio in Portfolio Expected
W
Beta
Return
0
0
0.045
0.25
0.3125 0.06625
0.5
0.625
0.0875
0.75
0.9375 0.10875
1
1.25
0.13
1.25
1.5625 0.15125
1.5
1.875
0.1725
Portfolio Expected Return

0.2
P
o
r
t
f
o
l
i
o
E
x
p
e
c
t
e
d
y = 0.068x + 0.045
R 0.15
e
t 0.1
u
r 0.05
n
0
0
0.5
1
Portfolio Beta
pected Return
y = 0.068x + 0.045
1
Portfolio Beta
1.5
Stock
Beta
E(RY)
CAPM => E(RY) = Rf +

(E(RM)-Rf)*BY
Reward To Risk Ratio

=> (E(RY) - Rf)/BY
Stock
Z
Beta
E(RZ)
CAPM => E(RZ) = Rf +

(E(RM)-Rf)*BZ
1.3
0.13
Expected Return using CAPM is higher than the Expected Return given. T
using CAMP prices the risk (systematic risk) at 13.6%. This means that
the SML, which means the stock is over valued - Low Rate / High Price. T
the given risk level.
0.136
Stock Y is offering a 6.54% return for 1 unit of Systematic Risk. Since the
we can see that Y is not offering a rate high enough. In a competitive ma
be bid down. In theory, this stock will bid down until the return is equ
market.
0.065384615
0.75
0.105
Expected Return using CAPM is lower than the Expected Return given. T
using CAPM prices the risk (systematic risk) at 9.75%. The given rate o
SML) and there for is priced too low - High Rate / Low Price. There is m
suggests there should be at the given risk level. If we believed ou
0.0975
Stock Z is offering a 8.00% return for 1 unit of Systematic Risk. Since the
Reward To Risk Ratio
we can see that Z is offering a higher rate. In a competitive market the p
=> (E(RZ) - Rf)/BZ
0.08 up. In theory, this stock should be bid up until the return is equal to the
Rf
0.045
Market Risk Premium
= E(RM) - Rf
0.07
Goal
Are stocks priced correctly?
Check:
Stock
Beta
E(RY)
CAPM => E(RY) = Rf + (E(RM)-Rf)*BY
Reward To Risk Ratio => (E(RY) - Rf)/BY
Stock
Beta
E(RZ)
CAPM => E(RZ) = Rf + (E(RM)-Rf)*BZ
Reward To Risk Ratio => (E(RZ) - Rf)/BZ
Rf
Goal
(E(RY) - Rf)/BY = (E(RZ) - Rf)/BZ
(0.13 - Rf)/1.3 = (0.105 - Rf)/0.75
Rf = (0.105*1.3 - 0.13*0.75)/(1.3 - 0.75)
Y
1.3
0.13
Z
0.75
0.105
0.045
0.07
Stock
Beta
E(RY)
CAPM => E(RY) = Rf + (E(RM)-Rf)*BY
Reward To Risk Ratio => (E(RY) - Rf)/BY
Stock
Beta
E(RZ)
CAPM => E(RZ) = Rf + (E(RM)-Rf)*BZ
Reward To Risk Ratio => (E(RZ) - Rf)/BZ
Rf
Goal
(E(RY) - Rf)/BY = (E(RZ) - Rf)/BZ
(0.13 - Rf)/1.3 = (0.105 - Rf)/0.75
Rf = (0.105*1.3 - 0.13*0.75)/(1.3 - 0.75)
Y
1.3
0.13
0.136
0.065384615
Z
0.75
0.105
0.0975
0.08
0.045
0.07
0.070909091
Historical
Average
Return =
Investment
RH
Large Stocks
11.70%
Small Stocks
16.40%
Long-term Corporate Bonds
6.20%
Long-term Government Bonds
6.10%
U.S. Treasury Bills = Rf
3.80%
Inflation = I
3.10%
WLC
E(RLC)
WLTB
E(RLTB)
E(RP)
50.00%
11.70%
50.00%
6.20%
WS
E(Rs)
Wrf
E(Rrf)
E(RP)
50.00%
16.40%
50.00%
3.80%
Historical
Average
Return =
Investment
RH
Large Stocks
11.70%
Small Stocks
16.40%
Long-term Corporate Bonds
6.20%
Long-term Government Bonds
6.10%
U.S. Treasury Bills = Rf
3.80%
Inflation = I
3.10%
WLC
E(RLC)
WLTB
E(RLTB)
E(RP)
50.00%
11.70%
50.00%
6.20%
8.9500%
WS
E(Rs)
Wrf
E(Rrf)
E(RP)
50.00%
16.40%
50.00%
3.80%
10.1000%
Total To Invest
E(RH)
E(RL)
E(RP)
WH
WL
Amount To Invest In H
$250,000.00
0.14
0.101
0.1205
0.5
0.5
$125,000.00
$125,000.00
Target
0.12
Total To Invest
E(RH)
E(RL)
E(RP)
WH
WL
$250,000.00
0.14
0.101
0.12 Used Goal Seek
0.487179487
0.512820513
$121,794.87
$128,205.13
Target
0.12
BJ
1.2
E(RJ)
0.1316
BK
0.75
E(RK)
0.101
Goal:
Portfolio w Same Risk as Market
Beta of Market =
1
1 = BJ*WJ + BK*(1-WJ)
(1-.75)/(1.2-.75) = WJ
WJ
WJ
WK
1-WJ
E(RP)
BJ
1.2
E(RJ)
0.1316
BK
0.75
E(RK)
0.101
Goal:
Portfolio w Same Risk as Market
Beta of Market =
1
1 = BJ*WJ + BK*(1-WJ)
(1-.75)/(1.2-.75) = WJ
WJ
0.555556 WJ
WK
0.444444 1-WJ
E(RP)
0.118
Weight
State Of
Ecomnomy
Boom
Normal
Bust
0.4
0.4
0.2
1
Estimated Stock Estimated Stock Estimated Stock
Prob of
Return of A if
Return of B if
Return of C if
Return If State
State
State Occurs
State Occurs
State Occurs
Occurs
0.15
0.02
0.32
0.6
0.55
0.1
0.12
0.2
0.3
0.16
-0.11
-0.35
E(RP)
Total Risk = SDP
Rf
E(RP) - Rf
SQRT
0.0375
Expected Risk Premiu
Deviation^2*
Prob
add
Expected Risk Premium
Weight
State Of
Ecomnomy
Boom
Normal
Bust
0.4
0.4
0.2
1
Estimated Stock Estimated Stock Estimated Stock
Prob of
Return of A if
Return of B if
Return of C if
Return If State
State
State Occurs
State Occurs
State Occurs
Occurs
0.15
0.02
0.32
0.6
0.256
0.55
0.1
0.12
0.2
0.128
0.3
0.16
-0.11
-0.35
-0.05
E(RP)
Total Risk = SDP
Rf
E(RP) - Rf
0.0938
0.103890134 SQRT
0.0375
0.0563 Expected Risk Premiu
Deviation^2*
Prob
0.00394633
0.0006433
0.00620353
0.01079316 add
Expected Risk Premium
Estimated Stock Estimated Stock

Return of I if State Return of II if
State Of Economy
Prob of State
Occurs
State Occurs
Recession
0.25
0.02
-0.2
Normal
0.6
0.32
0.12
0.15
0.18
0.4
E(R)
Total Risk = SD
Using CAPM
Solve for Bi
(E(Ri) - Rf)/(E(RM) - Rf) = Bi
Most Systematic Risk?
Most Unsystematic Risk?
Market Risk Premium
0.11
Rf
0.04
Estimated Stock Estimated Stock

Return of I if State Return of II if
State Of Economy
Prob of State
Occurs
State Occurs
Recession
0.25
0.02
-0.2
Normal
0.6
0.32
0.12
0.15
0.18
0.4
E(R)
0.224
0.082
Total Risk = SD
0.127373467
0.189515171
Using CAPM
Solve for Bi
(E(Ri) - Rf)/(E(RM) - Rf) = Bi
Most Systematic Risk?
1.672727273
0.381818182
Most Unsystematic Risk?
Market Risk Premium
0.11
Rf
0.04
http://finance.yahoo.com/
Good
www.stlouisfed.org
http://research.stlouisfed.org/fred2/series/TB3MS/downloaddata?cid=116
3 month rate 0.0016
Mean
-0.003598
check
Geomean
-0.014096
1.41
STDEV
0.1501
Beta
0.062844
Stock
FLIR
Month Date
Adj Close Monthly Returns
1 11/1/2010
27.4
2 10/1/2010
27.84
0.016058394
3 9/1/2010
25.7
-0.076867816
4 8/2/2010
25.1
-0.023346304
5 7/1/2010
29.76
0.185657371
6 6/1/2010
29.09
-0.022513441
7 5/3/2010
28.49
-0.020625645
8 4/1/2010
30.59
0.073710074
9 3/1/2010
28.18
-0.078783916
10 2/1/2010
26.81
-0.04861604
11 1/4/2010
29.58
0.103319657
12 12/1/2009
32.73
0.106490872
13 11/2/2009
28.7
-0.123128628
14 10/1/2009
27.81
-0.031010453
15 9/1/2009
27.97
0.005753326
16 8/3/2009
23.02
-0.176975331
17 7/1/2009
21.49
-0.066463944
18 6/1/2009
22.56
0.0497906
19 5/1/2009
22.46
-0.004432624
20 4/1/2009
22.18
-0.012466607
21 3/2/2009
20.48
-0.076645627
22 2/2/2009
20.41
-0.003417969
23 1/2/2009
24.97
0.223419892
24 12/1/2008
30.68
0.228674409
25 11/3/2008
31
0.010430248
26 10/1/2008
32.1
0.035483871
27 9/2/2008
38.42
0.196884735
28 8/1/2008
35.7
-0.07079646
29 7/1/2008
40.74
0.141176471
30 6/2/2008
40.57
-0.004172803
31 5/1/2008
39.42
-0.028346069
32 4/1/2008
34.33
-0.129122273
33 3/3/2008
30.09
-0.123507137
34 2/1/2008
28.46
-0.054170821
35 1/2/2008
30.28
0.063949403
36 12/3/2007
31.3
0.033685601
37 11/1/2007
34.37
0.098083067
Index
S&P 500
Date
Adj Close
Dates Same
11/1/2010
1189.4
TRUE
10/1/2010 1183.26 -0.005162
TRUE
9/1/2010
1141.2 -0.035546
TRUE
8/2/2010 1049.33 -0.080503
TRUE
7/1/2010
1101.6 0.049813
TRUE
6/1/2010 1030.71 -0.064352
TRUE
5/3/2010 1089.41 0.056951
TRUE
4/1/2010 1186.69 0.089296
TRUE
3/1/2010 1169.43 -0.014545
TRUE
2/1/2010 1104.49 -0.055531
TRUE
1/4/2010 1073.87 -0.027723
TRUE
12/1/2009
1115.1 0.038394
TRUE
11/2/2009 1095.63 -0.01746
TRUE
10/1/2009 1036.19 -0.054252
TRUE
9/1/2009 1057.08
0.02016
TRUE
8/3/2009 1020.62 -0.034491
TRUE
7/1/2009
987.48 -0.03247
TRUE
6/1/2009
919.32 -0.069024
TRUE
5/1/2009
919.14 -0.000196
TRUE
4/1/2009
872.81 -0.050406
TRUE
3/2/2009
797.87 -0.085861
TRUE
2/2/2009
735.09 -0.078684
TRUE
1/2/2009
825.88 0.123509
TRUE
12/1/2008
903.25 0.093682
TRUE
11/3/2008
896.24 -0.007761
TRUE
10/1/2008
968.75 0.080905
TRUE
9/2/2008 1166.36 0.203985
TRUE
8/1/2008 1282.83 0.099858
TRUE
7/1/2008 1267.38 -0.012044
TRUE
6/2/2008
1280 0.009958
TRUE
5/1/2008 1400.38 0.094047
TRUE
4/1/2008 1385.59 -0.010561
TRUE
3/3/2008
1322.7 -0.045389
TRUE
2/1/2008 1330.63 0.005995
TRUE
1/2/2008 1378.55 0.036013
TRUE
12/3/2007 1468.36 0.065148
TRUE
11/1/2007 1481.14 0.008704
TRUE
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
10/1/2007
9/4/2007
8/1/2007
7/2/2007
6/1/2007
5/1/2007
4/2/2007
3/1/2007
2/1/2007
1/3/2007
12/1/2006
11/1/2006
10/2/2006
9/1/2006
8/1/2006
7/3/2006
6/1/2006
5/1/2006
4/3/2006
3/1/2006
2/1/2006
1/3/2006
12/1/2005
11/1/2005
10/3/2005
9/1/2005
8/1/2005
7/1/2005
6/1/2005
5/2/2005
4/1/2005
3/1/2005
2/1/2005
1/3/2005
12/1/2004
11/1/2004
10/1/2004
9/1/2004
8/2/2004
7/1/2004
6/1/2004
5/3/2004
4/1/2004
3/1/2004
2/2/2004
1/2/2004
12/1/2003
34.69
27.69
24.62
21.83
23.12
20.68
20.25
17.83
17.38
15.45
15.91
16.1
15.97
13.58
13.85
11.99
11.45
12.81
12.23
14.2
12.92
11.85
11.16
12.4
10.48
14.78
16.15
16.44
14.92
13.4
13.3
15.15
15.62
15.24
15.95
14.09
13.3
14.62
14.59
15.91
13.73
12.3
11.71
9.53
9.61
9.05
9.12
0.009310445
-0.201787259
-0.11087035
-0.113322502
0.059092991
-0.105536332
-0.020793037
-0.119506173
-0.025238362
-0.111047181
0.029773463
0.011942175
-0.008074534
-0.149655604
0.01988218
-0.134296029
-0.045037531
0.118777293
-0.045277127
0.161079313
-0.090140845
-0.082817337
-0.058227848
0.111111111
-0.15483871
0.410305344
0.092692828
0.017956656
-0.092457421
-0.101876676
-0.007462687
0.139097744
0.031023102
-0.024327785
0.046587927
-0.11661442
-0.056068133
0.09924812
-0.002051984
0.090472927
-0.137020742
-0.104151493
-0.04796748
-0.18616567
0.008394544
-0.058272633
0.007734807
10/1/2007
9/4/2007
8/1/2007
7/2/2007
6/1/2007
5/1/2007
4/2/2007
3/1/2007
2/1/2007
1/3/2007
12/1/2006
11/1/2006
10/2/2006
9/1/2006
8/1/2006
7/3/2006
6/1/2006
5/1/2006
4/3/2006
3/1/2006
2/1/2006
1/3/2006
12/1/2005
11/1/2005
10/3/2005
9/1/2005
8/1/2005
7/1/2005
6/1/2005
5/2/2005
4/1/2005
3/1/2005
2/1/2005
1/3/2005
12/1/2004
11/1/2004
10/1/2004
9/1/2004
8/2/2004
7/1/2004
6/1/2004
5/3/2004
4/1/2004
3/1/2004
2/2/2004
1/2/2004
12/1/2003
1549.38
1526.75
1473.99
1455.27
1503.35
1530.62
1482.37
1420.86
1406.82
1438.24
1418.3
1400.63
1377.94
1335.85
1303.82
1276.66
1270.2
1270.09
1310.61
1294.87
1280.66
1280.08
1248.29
1249.48
1207.01
1228.81
1220.33
1234.18
1191.33
1191.5
1156.85
1180.59
1203.6
1181.27
1211.92
1173.82
1130.2
1114.58
1104.24
1101.72
1140.84
1120.68
1107.3
1126.21
1144.94
1131.13
1111.92
0.046073
-0.014606
-0.034557
-0.0127
0.033039
0.018139
-0.031523
-0.041494
-0.009881
0.022334
-0.013864
-0.012459
-0.0162
-0.030546
-0.023977
-0.020831
-0.00506
-8.66E-05
0.031903
-0.01201
-0.010974
-0.000453
-0.024834
0.000953
-0.03399
0.018061
-0.006901
0.011349
-0.034719
0.000143
-0.029081
0.020521
0.01949
-0.018553
0.025947
-0.031438
-0.037161
-0.013821
-0.009277
-0.002282
0.035508
-0.017671
-0.011939
0.017078
0.016631
-0.012062
-0.016983
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111
112
113
114
115
116
117
118
119
120
121
122
123
124
125
126
127
128
129
130
131
11/3/2003
10/1/2003
9/2/2003
8/1/2003
7/1/2003
6/2/2003
5/1/2003
4/1/2003
3/3/2003
2/3/2003
1/2/2003
12/2/2002
11/1/2002
10/1/2002
9/3/2002
8/1/2002
7/1/2002
6/3/2002
5/1/2002
4/1/2002
3/1/2002
2/4/2002
1/2/2002
12/3/2001
11/1/2001
10/1/2001
9/4/2001
8/1/2001
7/2/2001
6/1/2001
5/1/2001
4/2/2001
3/1/2001
2/1/2001
1/2/2001
12/1/2000
11/1/2000
10/2/2000
9/1/2000
8/1/2000
7/3/2000
6/23/2000
5/1/2000
4/3/2000
3/1/2000
2/1/2000
1/3/2000
8.61
7.82
6.36
6.61
6.78
7.53
7.13
6.51
5.93
5.53
5.84
6.1
5.44
5.92
4.37
4.74
5.11
5.25
5.53
4.98
5.97
6.82
5.71
4.74
5.02
5.79
5.13
3.53
3.76
3.13
2.01
1.72
1.02
0.88
0.62
0.7
0.45
0.75
0.75
0.7
0.97
0.81
1.15
0.92
1.15
1.98
2.3
-0.055921053
-0.091753775
-0.186700767
0.039308176
0.025718608
0.110619469
-0.05312085
-0.086956522
-0.089093702
-0.067453626
0.056057866
0.044520548
-0.108196721
0.088235294
-0.261824324
0.084668192
0.078059072
0.02739726
0.053333333
-0.099457505
0.198795181
0.142378559
-0.162756598
-0.169877408
0.05907173
0.153386454
-0.113989637
-0.311890838
0.065155807
-0.167553191
-0.357827476
-0.144278607
-0.406976744
-0.137254902
-0.295454545
0.129032258
-0.357142857
0.666666667
0
-0.066666667
0.385714286
-0.164948454
0.419753086
-0.2
0.25
0.72173913
0.161616162
11/3/2003
10/1/2003
9/2/2003
8/1/2003
7/1/2003
6/2/2003
5/1/2003
4/1/2003
3/3/2003
2/3/2003
1/2/2003
12/2/2002
11/1/2002
10/1/2002
9/3/2002
8/1/2002
7/1/2002
6/3/2002
5/1/2002
4/1/2002
3/1/2002
2/1/2002
1/2/2002
12/3/2001
11/1/2001
10/1/2001
9/4/2001
8/1/2001
7/2/2001
6/1/2001
5/1/2001
4/2/2001
3/1/2001
2/1/2001
1/2/2001
12/1/2000
11/1/2000
10/2/2000
9/1/2000
8/1/2000
7/3/2000
6/1/2000
5/1/2000
4/3/2000
3/1/2000
2/1/2000
1/3/2000
1058.2
1050.71
995.97
1008.01
990.31
974.5
963.59
916.92
848.18
841.15
855.7
879.82
936.31
885.76
815.28
916.07
911.62
989.82
1067.14
1076.92
1147.39
1106.73
1130.2
1148.08
1139.45
1059.78
1040.94
1133.58
1211.23
1224.38
1255.82
1249.46
1160.33
1239.94
1366.01
1320.28
1314.95
1429.4
1436.51
1517.68
1430.83
1454.6
1420.6
1452.43
1498.58
1366.42
1394.46
-0.048313
-0.007078
-0.052098
0.012089
-0.017559
-0.015965
-0.011195
-0.048433
-0.074968
-0.008288
0.017298
0.028187
0.064206
-0.053989
-0.07957
0.123626
-0.004858
0.085781
0.078115
0.009165
0.065437
-0.035437
0.021207
0.01582
-0.007517
-0.06992
-0.017777
0.088996
0.0685
0.010857
0.025678
-0.005064
-0.071335
0.06861
0.101674
-0.033477
-0.004037
0.087038
0.004974
0.056505
-0.057226
0.016613
-0.023374
0.022406
0.031774
-0.08819
0.020521
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
FALSE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
FALSE
TRUE
TRUE
TRUE
TRUE
TRUE
132
133
134
135
136
137
138
139
140
141
142
143
144
145
146
147
148
149
150
151
152
153
154
155
156
157
158
159
160
161
162
163
164
165
166
167
168
169
170
171
172
173
174
175
176
177
178
12/1/1999
11/1/1999
10/1/1999
9/1/1999
8/2/1999
7/1/1999
6/1/1999
5/3/1999
4/1/1999
3/1/1999
2/1/1999
1/4/1999
12/1/1998
11/2/1998
10/1/1998
9/1/1998
8/3/1998
7/1/1998
6/1/1998
5/1/1998
4/1/1998
3/2/1998
2/2/1998
1/2/1998
12/1/1997
11/3/1997
10/1/1997
9/2/1997
8/1/1997
7/1/1997
6/2/1997
5/1/1997
4/1/1997
3/3/1997
2/3/1997
1/2/1997
12/2/1996
11/1/1996
10/1/1996
9/3/1996
8/1/1996
7/1/1996
6/3/1996
5/1/1996
4/1/1996
3/1/1996
2/1/1996
2.03
1.91
1.77
1.62
2.06
2.2
1.89
1.67
1.72
2.27
2.3
2.73
2.91
2.41
2.11
1.66
1.31
2.09
2.16
2.34
2.58
2.53
2.41
2.22
2.59
2.47
2.62
2.48
2.31
2.55
1.97
2
1.95
2.03
1.95
1.81
1.72
1.7
1.75
1.64
1.72
1.61
1.53
1.75
1.59
1.53
1.56
-0.117391304
-0.0591133
-0.073298429
-0.084745763
0.271604938
0.067961165
-0.140909091
-0.116402116
0.02994012
0.319767442
0.013215859
0.186956522
0.065934066
-0.171821306
-0.124481328
-0.213270142
-0.210843373
0.595419847
0.033492823
0.083333333
0.102564103
-0.019379845
-0.04743083
-0.078838174
0.166666667
-0.046332046
0.060728745
-0.053435115
-0.068548387
0.103896104
-0.22745098
0.015228426
-0.025
0.041025641
-0.039408867
-0.071794872
-0.049723757
-0.011627907
0.029411765
-0.062857143
0.048780488
-0.063953488
-0.049689441
0.14379085
-0.091428571
-0.037735849
0.019607843
12/1/1999
11/1/1999
10/1/1999
9/1/1999
8/2/1999
7/1/1999
6/1/1999
5/3/1999
4/1/1999
3/1/1999
2/1/1999
1/4/1999
12/1/1998
11/2/1998
10/1/1998
9/1/1998
8/3/1998
7/1/1998
6/1/1998
5/1/1998
4/1/1998
3/2/1998
2/2/1998
1/2/1998
12/1/1997
11/3/1997
10/1/1997
9/2/1997
8/1/1997
7/1/1997
6/2/1997
5/1/1997
4/1/1997
3/3/1997
2/3/1997
1/2/1997
12/2/1996
11/1/1996
10/1/1996
9/3/1996
8/1/1996
7/1/1996
6/3/1996
5/1/1996
4/1/1996
3/1/1996
2/1/1996
1469.25
1388.91
1362.93
1282.71
1320.41
1328.72
1372.71
1301.84
1335.18
1286.37
1238.33
1279.64
1229.23
1163.63
1098.67
1017.01
957.28
1120.67
1133.84
1090.82
1111.75
1101.75
1049.34
980.28
970.43
955.4
914.62
947.28
899.47
954.31
885.14
848.28
801.34
757.12
790.82
786.16
740.74
757.02
705.27
687.33
651.99
639.95
670.63
669.12
654.17
645.5
640.43
0.053634
-0.054681
-0.018705
-0.058858
0.029391
0.006293
0.033107
-0.051628
0.02561
-0.036557
-0.037345
0.033359
-0.039394
-0.053367
-0.055825
-0.074326
-0.058731
0.170682
0.011752
-0.037942
0.019187
-0.008995
-0.04757
-0.065813
-0.010048
-0.015488
-0.042684
0.035709
-0.050471
0.060969
-0.072482
-0.041643
-0.055336
-0.055183
0.044511
-0.005893
-0.057774
0.021978
-0.06836
-0.025437
-0.051416
-0.018467
0.047941
-0.002252
-0.022343
-0.013253
-0.007854
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
179
180
181
182
183
184
185
186
187
188
189
190
191
192
193
194
195
196
197
198
199
200
201
202
203
204
205
206
207
208
209
210
1/2/1996
12/1/1995
11/1/1995
10/2/1995
9/1/1995
8/1/1995
7/3/1995
6/1/1995
5/1/1995
4/3/1995
3/1/1995
2/1/1995
1/3/1995
12/1/1994
11/1/1994
10/3/1994
9/1/1994
8/1/1994
7/1/1994
6/1/1994
5/2/1994
4/4/1994
3/1/1994
2/1/1994
1/3/1994
12/1/1993
11/1/1993
10/1/1993
9/1/1993
8/2/1993
7/1/1993
6/22/1993
1.31
1.53
1.62
1.59
1.53
1.62
1.77
1.78
1.56
1.75
1.94
1.81
1.75
1.62
1.62
1.69
1.53
1.5
1.72
1.61
1.75
1.83
1.72
1.52
1.53
1.22
1.34
1.38
1.5
1.22
1.34
1.41
-0.16025641
0.167938931
0.058823529
-0.018518519
-0.037735849
0.058823529
0.092592593
0.005649718
-0.123595506
0.121794872
0.108571429
-0.067010309
-0.033149171
-0.074285714
0
0.043209877
-0.094674556
-0.019607843
0.146666667
-0.063953488
0.086956522
0.045714286
-0.06010929
-0.11627907
0.006578947
-0.202614379
0.098360656
0.029850746
0.086956522
-0.186666667
0.098360656
0.052238806
1/2/1996
12/1/1995
11/1/1995
10/2/1995
9/1/1995
8/1/1995
7/3/1995
6/1/1995
5/1/1995
4/3/1995
3/1/1995
2/1/1995
1/3/1995
12/1/1994
11/1/1994
10/3/1994
9/1/1994
8/1/1994
7/1/1994
6/1/1994
5/2/1994
4/4/1994
3/1/1994
2/1/1994
1/3/1994
12/1/1993
11/1/1993
10/1/1993
9/1/1993
8/2/1993
7/1/1993
6/22/1993
636.02
615.93
605.37
581.5
584.41
561.88
562.06
544.75
533.4
514.71
500.71
487.39
470.42
459.27
453.69
472.35
462.71
475.49
458.26
444.27
456.5
450.91
445.77
467.14
481.61
466.45
461.79
467.83
458.93
463.56
448.13
450.53
-0.006886
-0.031587
-0.017145
-0.03943
0.005004
-0.038552
0.00032
-0.030797
-0.020835
-0.035039
-0.0272
-0.026602
-0.034818
-0.023702
-0.01215
0.041129
-0.020409
0.02762
-0.036236
-0.030529
0.027528
-0.012245
-0.011399
0.04794
0.030976
-0.031478
-0.00999
0.01308
-0.019024
0.010089
-0.033286
0.005356
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
Mean
Geomean
STDEV
-0.00360382
-0.00463411
0.04609377
check
450.53
http://finance.yahoo.com/
Good
www.stlouisfed.org
http://research.stlouisfed.org/fred2/series/TB3MS/downloaddata?cid=116
3 month rate 0.0016
Mean
-0.003598
check
Geomean
-0.014096
1.41
STDEV
0.1501
Beta
0.062844
Stock
FLIR
Month Date
Adj Close Monthly Returns
1 11/1/2010
27.4
2 10/1/2010
27.84
0.016058394
3 9/1/2010
25.7
-0.076867816
4 8/2/2010
25.1
-0.023346304
5 7/1/2010
29.76
0.185657371
6 6/1/2010
29.09
-0.022513441
7 5/3/2010
28.49
-0.020625645
8 4/1/2010
30.59
0.073710074
9 3/1/2010
28.18
-0.078783916
10 2/1/2010
26.81
-0.04861604
11 1/4/2010
29.58
0.103319657
12 12/1/2009
32.73
0.106490872
13 11/2/2009
28.7
-0.123128628
14 10/1/2009
27.81
-0.031010453
15 9/1/2009
27.97
0.005753326
16 8/3/2009
23.02
-0.176975331
17 7/1/2009
21.49
-0.066463944
18 6/1/2009
22.56
0.0497906
19 5/1/2009
22.46
-0.004432624
20 4/1/2009
22.18
-0.012466607
21 3/2/2009
20.48
-0.076645627
22 2/2/2009
20.41
-0.003417969
23 1/2/2009
24.97
0.223419892
24 12/1/2008
30.68
0.228674409
25 11/3/2008
31
0.010430248
26 10/1/2008
32.1
0.035483871
27 9/2/2008
38.42
0.196884735
28 8/1/2008
35.7
-0.07079646
29 7/1/2008
40.74
0.141176471
30 6/2/2008
40.57
-0.004172803
31 5/1/2008
39.42
-0.028346069
32 4/1/2008
34.33
-0.129122273
33 3/3/2008
30.09
-0.123507137
34 2/1/2008
28.46
-0.054170821
35 1/2/2008
30.28
0.063949403
36 12/3/2007
31.3
0.033685601
37 11/1/2007
34.37
0.098083067
Index
S&P 500
Date
Adj Close
Dates Same
11/1/2010
1189.4
TRUE
10/1/2010 1183.26 -0.005162
TRUE
9/1/2010
1141.2 -0.035546
TRUE
8/2/2010 1049.33 -0.080503
TRUE
7/1/2010
1101.6 0.049813
TRUE
6/1/2010 1030.71 -0.064352
TRUE
5/3/2010 1089.41 0.056951
TRUE
4/1/2010 1186.69 0.089296
TRUE
3/1/2010 1169.43 -0.014545
TRUE
2/1/2010 1104.49 -0.055531
TRUE
1/4/2010 1073.87 -0.027723
TRUE
12/1/2009
1115.1 0.038394
TRUE
11/2/2009 1095.63 -0.01746
TRUE
10/1/2009 1036.19 -0.054252
TRUE
9/1/2009 1057.08
0.02016
TRUE
8/3/2009 1020.62 -0.034491
TRUE
7/1/2009
987.48 -0.03247
TRUE
6/1/2009
919.32 -0.069024
TRUE
5/1/2009
919.14 -0.000196
TRUE
4/1/2009
872.81 -0.050406
TRUE
3/2/2009
797.87 -0.085861
TRUE
2/2/2009
735.09 -0.078684
TRUE
1/2/2009
825.88 0.123509
TRUE
12/1/2008
903.25 0.093682
TRUE
11/3/2008
896.24 -0.007761
TRUE
10/1/2008
968.75 0.080905
TRUE
9/2/2008 1166.36 0.203985
TRUE
8/1/2008 1282.83 0.099858
TRUE
7/1/2008 1267.38 -0.012044
TRUE
6/2/2008
1280 0.009958
TRUE
5/1/2008 1400.38 0.094047
TRUE
4/1/2008 1385.59 -0.010561
TRUE
3/3/2008
1322.7 -0.045389
TRUE
2/1/2008 1330.63 0.005995
TRUE
1/2/2008 1378.55 0.036013
TRUE
12/3/2007 1468.36 0.065148
TRUE
11/1/2007 1481.14 0.008704
TRUE
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
10/1/2007
9/4/2007
8/1/2007
7/2/2007
6/1/2007
5/1/2007
4/2/2007
3/1/2007
2/1/2007
1/3/2007
12/1/2006
11/1/2006
10/2/2006
9/1/2006
8/1/2006
7/3/2006
6/1/2006
5/1/2006
4/3/2006
3/1/2006
2/1/2006
1/3/2006
12/1/2005
11/1/2005
10/3/2005
9/1/2005
8/1/2005
7/1/2005
6/1/2005
5/2/2005
4/1/2005
3/1/2005
2/1/2005
1/3/2005
12/1/2004
11/1/2004
10/1/2004
9/1/2004
8/2/2004
7/1/2004
6/1/2004
5/3/2004
4/1/2004
3/1/2004
2/2/2004
1/2/2004
12/1/2003
34.69
27.69
24.62
21.83
23.12
20.68
20.25
17.83
17.38
15.45
15.91
16.1
15.97
13.58
13.85
11.99
11.45
12.81
12.23
14.2
12.92
11.85
11.16
12.4
10.48
14.78
16.15
16.44
14.92
13.4
13.3
15.15
15.62
15.24
15.95
14.09
13.3
14.62
14.59
15.91
13.73
12.3
11.71
9.53
9.61
9.05
9.12
0.009310445
-0.201787259
-0.11087035
-0.113322502
0.059092991
-0.105536332
-0.020793037
-0.119506173
-0.025238362
-0.111047181
0.029773463
0.011942175
-0.008074534
-0.149655604
0.01988218
-0.134296029
-0.045037531
0.118777293
-0.045277127
0.161079313
-0.090140845
-0.082817337
-0.058227848
0.111111111
-0.15483871
0.410305344
0.092692828
0.017956656
-0.092457421
-0.101876676
-0.007462687
0.139097744
0.031023102
-0.024327785
0.046587927
-0.11661442
-0.056068133
0.09924812
-0.002051984
0.090472927
-0.137020742
-0.104151493
-0.04796748
-0.18616567
0.008394544
-0.058272633
0.007734807
10/1/2007
9/4/2007
8/1/2007
7/2/2007
6/1/2007
5/1/2007
4/2/2007
3/1/2007
2/1/2007
1/3/2007
12/1/2006
11/1/2006
10/2/2006
9/1/2006
8/1/2006
7/3/2006
6/1/2006
5/1/2006
4/3/2006
3/1/2006
2/1/2006
1/3/2006
12/1/2005
11/1/2005
10/3/2005
9/1/2005
8/1/2005
7/1/2005
6/1/2005
5/2/2005
4/1/2005
3/1/2005
2/1/2005
1/3/2005
12/1/2004
11/1/2004
10/1/2004
9/1/2004
8/2/2004
7/1/2004
6/1/2004
5/3/2004
4/1/2004
3/1/2004
2/2/2004
1/2/2004
12/1/2003
1549.38
1526.75
1473.99
1455.27
1503.35
1530.62
1482.37
1420.86
1406.82
1438.24
1418.3
1400.63
1377.94
1335.85
1303.82
1276.66
1270.2
1270.09
1310.61
1294.87
1280.66
1280.08
1248.29
1249.48
1207.01
1228.81
1220.33
1234.18
1191.33
1191.5
1156.85
1180.59
1203.6
1181.27
1211.92
1173.82
1130.2
1114.58
1104.24
1101.72
1140.84
1120.68
1107.3
1126.21
1144.94
1131.13
1111.92
0.046073
-0.014606
-0.034557
-0.0127
0.033039
0.018139
-0.031523
-0.041494
-0.009881
0.022334
-0.013864
-0.012459
-0.0162
-0.030546
-0.023977
-0.020831
-0.00506
-8.66E-05
0.031903
-0.01201
-0.010974
-0.000453
-0.024834
0.000953
-0.03399
0.018061
-0.006901
0.011349
-0.034719
0.000143
-0.029081
0.020521
0.01949
-0.018553
0.025947
-0.031438
-0.037161
-0.013821
-0.009277
-0.002282
0.035508
-0.017671
-0.011939
0.017078
0.016631
-0.012062
-0.016983
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111
112
113
114
115
116
117
118
119
120
121
122
123
124
125
126
127
128
129
130
131
11/3/2003
10/1/2003
9/2/2003
8/1/2003
7/1/2003
6/2/2003
5/1/2003
4/1/2003
3/3/2003
2/3/2003
1/2/2003
12/2/2002
11/1/2002
10/1/2002
9/3/2002
8/1/2002
7/1/2002
6/3/2002
5/1/2002
4/1/2002
3/1/2002
2/4/2002
1/2/2002
12/3/2001
11/1/2001
10/1/2001
9/4/2001
8/1/2001
7/2/2001
6/1/2001
5/1/2001
4/2/2001
3/1/2001
2/1/2001
1/2/2001
12/1/2000
11/1/2000
10/2/2000
9/1/2000
8/1/2000
7/3/2000
6/23/2000
5/1/2000
4/3/2000
3/1/2000
2/1/2000
1/3/2000
8.61
7.82
6.36
6.61
6.78
7.53
7.13
6.51
5.93
5.53
5.84
6.1
5.44
5.92
4.37
4.74
5.11
5.25
5.53
4.98
5.97
6.82
5.71
4.74
5.02
5.79
5.13
3.53
3.76
3.13
2.01
1.72
1.02
0.88
0.62
0.7
0.45
0.75
0.75
0.7
0.97
0.81
1.15
0.92
1.15
1.98
2.3
-0.055921053
-0.091753775
-0.186700767
0.039308176
0.025718608
0.110619469
-0.05312085
-0.086956522
-0.089093702
-0.067453626
0.056057866
0.044520548
-0.108196721
0.088235294
-0.261824324
0.084668192
0.078059072
0.02739726
0.053333333
-0.099457505
0.198795181
0.142378559
-0.162756598
-0.169877408
0.05907173
0.153386454
-0.113989637
-0.311890838
0.065155807
-0.167553191
-0.357827476
-0.144278607
-0.406976744
-0.137254902
-0.295454545
0.129032258
-0.357142857
0.666666667
0
-0.066666667
0.385714286
-0.164948454
0.419753086
-0.2
0.25
0.72173913
0.161616162
11/3/2003
10/1/2003
9/2/2003
8/1/2003
7/1/2003
6/2/2003
5/1/2003
4/1/2003
3/3/2003
2/3/2003
1/2/2003
12/2/2002
11/1/2002
10/1/2002
9/3/2002
8/1/2002
7/1/2002
6/3/2002
5/1/2002
4/1/2002
3/1/2002
2/1/2002
1/2/2002
12/3/2001
11/1/2001
10/1/2001
9/4/2001
8/1/2001
7/2/2001
6/1/2001
5/1/2001
4/2/2001
3/1/2001
2/1/2001
1/2/2001
12/1/2000
11/1/2000
10/2/2000
9/1/2000
8/1/2000
7/3/2000
6/1/2000
5/1/2000
4/3/2000
3/1/2000
2/1/2000
1/3/2000
1058.2
1050.71
995.97
1008.01
990.31
974.5
963.59
916.92
848.18
841.15
855.7
879.82
936.31
885.76
815.28
916.07
911.62
989.82
1067.14
1076.92
1147.39
1106.73
1130.2
1148.08
1139.45
1059.78
1040.94
1133.58
1211.23
1224.38
1255.82
1249.46
1160.33
1239.94
1366.01
1320.28
1314.95
1429.4
1436.51
1517.68
1430.83
1454.6
1420.6
1452.43
1498.58
1366.42
1394.46
-0.048313
-0.007078
-0.052098
0.012089
-0.017559
-0.015965
-0.011195
-0.048433
-0.074968
-0.008288
0.017298
0.028187
0.064206
-0.053989
-0.07957
0.123626
-0.004858
0.085781
0.078115
0.009165
0.065437
-0.035437
0.021207
0.01582
-0.007517
-0.06992
-0.017777
0.088996
0.0685
0.010857
0.025678
-0.005064
-0.071335
0.06861
0.101674
-0.033477
-0.004037
0.087038
0.004974
0.056505
-0.057226
0.016613
-0.023374
0.022406
0.031774
-0.08819
0.020521
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
FALSE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
FALSE
TRUE
TRUE
TRUE
TRUE
TRUE
132
133
134
135
136
137
138
139
140
141
142
143
144
145
146
147
148
149
150
151
152
153
154
155
156
157
158
159
160
161
162
163
164
165
166
167
168
169
170
171
172
173
174
175
176
177
178
12/1/1999
11/1/1999
10/1/1999
9/1/1999
8/2/1999
7/1/1999
6/1/1999
5/3/1999
4/1/1999
3/1/1999
2/1/1999
1/4/1999
12/1/1998
11/2/1998
10/1/1998
9/1/1998
8/3/1998
7/1/1998
6/1/1998
5/1/1998
4/1/1998
3/2/1998
2/2/1998
1/2/1998
12/1/1997
11/3/1997
10/1/1997
9/2/1997
8/1/1997
7/1/1997
6/2/1997
5/1/1997
4/1/1997
3/3/1997
2/3/1997
1/2/1997
12/2/1996
11/1/1996
10/1/1996
9/3/1996
8/1/1996
7/1/1996
6/3/1996
5/1/1996
4/1/1996
3/1/1996
2/1/1996
2.03
1.91
1.77
1.62
2.06
2.2
1.89
1.67
1.72
2.27
2.3
2.73
2.91
2.41
2.11
1.66
1.31
2.09
2.16
2.34
2.58
2.53
2.41
2.22
2.59
2.47
2.62
2.48
2.31
2.55
1.97
2
1.95
2.03
1.95
1.81
1.72
1.7
1.75
1.64
1.72
1.61
1.53
1.75
1.59
1.53
1.56
-0.117391304
-0.0591133
-0.073298429
-0.084745763
0.271604938
0.067961165
-0.140909091
-0.116402116
0.02994012
0.319767442
0.013215859
0.186956522
0.065934066
-0.171821306
-0.124481328
-0.213270142
-0.210843373
0.595419847
0.033492823
0.083333333
0.102564103
-0.019379845
-0.04743083
-0.078838174
0.166666667
-0.046332046
0.060728745
-0.053435115
-0.068548387
0.103896104
-0.22745098
0.015228426
-0.025
0.041025641
-0.039408867
-0.071794872
-0.049723757
-0.011627907
0.029411765
-0.062857143
0.048780488
-0.063953488
-0.049689441
0.14379085
-0.091428571
-0.037735849
0.019607843
12/1/1999
11/1/1999
10/1/1999
9/1/1999
8/2/1999
7/1/1999
6/1/1999
5/3/1999
4/1/1999
3/1/1999
2/1/1999
1/4/1999
12/1/1998
11/2/1998
10/1/1998
9/1/1998
8/3/1998
7/1/1998
6/1/1998
5/1/1998
4/1/1998
3/2/1998
2/2/1998
1/2/1998
12/1/1997
11/3/1997
10/1/1997
9/2/1997
8/1/1997
7/1/1997
6/2/1997
5/1/1997
4/1/1997
3/3/1997
2/3/1997
1/2/1997
12/2/1996
11/1/1996
10/1/1996
9/3/1996
8/1/1996
7/1/1996
6/3/1996
5/1/1996
4/1/1996
3/1/1996
2/1/1996
1469.25
1388.91
1362.93
1282.71
1320.41
1328.72
1372.71
1301.84
1335.18
1286.37
1238.33
1279.64
1229.23
1163.63
1098.67
1017.01
957.28
1120.67
1133.84
1090.82
1111.75
1101.75
1049.34
980.28
970.43
955.4
914.62
947.28
899.47
954.31
885.14
848.28
801.34
757.12
790.82
786.16
740.74
757.02
705.27
687.33
651.99
639.95
670.63
669.12
654.17
645.5
640.43
0.053634
-0.054681
-0.018705
-0.058858
0.029391
0.006293
0.033107
-0.051628
0.02561
-0.036557
-0.037345
0.033359
-0.039394
-0.053367
-0.055825
-0.074326
-0.058731
0.170682
0.011752
-0.037942
0.019187
-0.008995
-0.04757
-0.065813
-0.010048
-0.015488
-0.042684
0.035709
-0.050471
0.060969
-0.072482
-0.041643
-0.055336
-0.055183
0.044511
-0.005893
-0.057774
0.021978
-0.06836
-0.025437
-0.051416
-0.018467
0.047941
-0.002252
-0.022343
-0.013253
-0.007854
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
179
180
181
182
183
184
185
186
187
188
189
190
191
192
193
194
195
196
197
198
199
200
201
202
203
204
205
206
207
208
209
210
1/2/1996
12/1/1995
11/1/1995
10/2/1995
9/1/1995
8/1/1995
7/3/1995
6/1/1995
5/1/1995
4/3/1995
3/1/1995
2/1/1995
1/3/1995
12/1/1994
11/1/1994
10/3/1994
9/1/1994
8/1/1994
7/1/1994
6/1/1994
5/2/1994
4/4/1994
3/1/1994
2/1/1994
1/3/1994
12/1/1993
11/1/1993
10/1/1993
9/1/1993
8/2/1993
7/1/1993
6/22/1993
1.31
1.53
1.62
1.59
1.53
1.62
1.77
1.78
1.56
1.75
1.94
1.81
1.75
1.62
1.62
1.69
1.53
1.5
1.72
1.61
1.75
1.83
1.72
1.52
1.53
1.22
1.34
1.38
1.5
1.22
1.34
1.41
-0.16025641
0.167938931
0.058823529
-0.018518519
-0.037735849
0.058823529
0.092592593
0.005649718
-0.123595506
0.121794872
0.108571429
-0.067010309
-0.033149171
-0.074285714
0
0.043209877
-0.094674556
-0.019607843
0.146666667
-0.063953488
0.086956522
0.045714286
-0.06010929
-0.11627907
0.006578947
-0.202614379
0.098360656
0.029850746
0.086956522
-0.186666667
0.098360656
0.052238806
1/2/1996
12/1/1995
11/1/1995
10/2/1995
9/1/1995
8/1/1995
7/3/1995
6/1/1995
5/1/1995
4/3/1995
3/1/1995
2/1/1995
1/3/1995
12/1/1994
11/1/1994
10/3/1994
9/1/1994
8/1/1994
7/1/1994
6/1/1994
5/2/1994
4/4/1994
3/1/1994
2/1/1994
1/3/1994
12/1/1993
11/1/1993
10/1/1993
9/1/1993
8/2/1993
7/1/1993
6/22/1993
636.02
615.93
605.37
581.5
584.41
561.88
562.06
544.75
533.4
514.71
500.71
487.39
470.42
459.27
453.69
472.35
462.71
475.49
458.26
444.27
456.5
450.91
445.77
467.14
481.61
466.45
461.79
467.83
458.93
463.56
448.13
450.53
-0.006886
-0.031587
-0.017145
-0.03943
0.005004
-0.038552
0.00032
-0.030797
-0.020835
-0.035039
-0.0272
-0.026602
-0.034818
-0.023702
-0.01215
0.041129
-0.020409
0.02762
-0.036236
-0.030529
0.027528
-0.012245
-0.011399
0.04794
0.030976
-0.031478
-0.00999
0.01308
-0.019024
0.010089
-0.033286
0.005356
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
Mean
Geomean
STDEV
-0.00360382
-0.00463411
0.04609377
check
450.53
Market Model
Rt - RRf = Alphai + Betai * [RM - RRf] + Epsilont

Rt
RRf
Alphai
Betai
RM
Epsilont
Return on the Stock for a given period

Risk-Free Rate for a given period
Regression Intercept
Regression Slope (stock's estimated Beta)
Return on the Stock Market for a given period
Residuals for the Regression
0.4
0.3
0.2
0.1
Weekly Mean
Weekly Geomean
Ave of 2
APR
Rf
Count
Ybar
Intercept =
Slope = Beta
Standard Error for Linear Regression
Standard Error for Linear Regression
Total Variation
Explained Variation
Date
WFMI Close Adj
11/22/2010
11/15/2010
11/8/2010
11/1/2010
10/25/2010
10/18/2010
10/11/2010
10/4/2010
9/27/2010
9/20/2010
9/13/2010
9/7/2010
8/30/2010
8/23/2010
8/16/2010
8/9/2010
8/2/2010
0.002162385
0.001957161
-0.000632636
0.001262828 0
-0.15
-0.1
-0.05
0.000764874
0.001609995
-0.1
0.03977347
0.083719723
0.0016
-0.2
159
-0.3
0.002162385
3.57903E-05
1.086571289
0.062527918
0.062527918 Actual - Predicted
0.074927851 Actual - Average
0.041284891 Predicted - Average
47.01
45.71
46.86
45.49
39.75
39.89
38.3
34.57
37.07
37.07
37.09
35.47
36.66
35.7
36.72
36.42
36.48
Weekly Return WFMI

S&P 500 Adj Weekly Return S & P
1189.4
-0.027653691
1199.73 0.008685051
0.025158609
1199.21 -0.000433431
-0.029236022
1225.85 0.022214625
-0.126181578
1183.26 -0.034743239
0.003522013
1183.08 -0.000152122
-0.039859614
1176.19 -0.005823782
-0.097389034
1165.15 -0.009386239
0.072317038
1146.24
-0.01622967
0
1148.67 0.002119975
0.00053952
1125.59 -0.020092803
-0.043677541
1109.55 -0.014250304
0.033549478
1104.51 -0.004542382
-0.026186579
1064.59 -0.036142724
0.028571429
1071.69 0.006669234
-0.008169935
1079.25 0.007054279
0.001647446
1121.64 0.039277276
7/26/2010
7/19/2010
7/12/2010
7/6/2010
6/28/2010
6/21/2010
6/14/2010
6/7/2010
6/1/2010
5/24/2010
5/17/2010
5/10/2010
5/3/2010
4/26/2010
4/19/2010
4/12/2010
4/5/2010
3/29/2010
3/22/2010
3/15/2010
3/8/2010
3/1/2010
2/22/2010
2/16/2010
2/8/2010
2/1/2010
1/25/2010
1/19/2010
1/11/2010
1/4/2010
12/28/2009
12/21/2009
12/14/2009
12/7/2009
11/30/2009
11/23/2009
11/16/2009
11/9/2009
11/2/2009
10/26/2009
10/19/2009
10/12/2009
10/5/2009
9/28/2009
9/21/2009
9/14/2009
9/8/2009
37.97
38.77
37.21
36.66
35.02
38.69
40.36
39.38
38.61
40.43
39.24
40.83
36.68
39.02
40.2
39.11
38.8
36.91
35.41
35.83
36.3
36.11
35.49
33.66
29.75
27.38
27.22
28.45
27.95
27.96
27.45
28.41
26.99
26.67
26.2
25.9
26.36
27.49
28.25
32.06
33.36
33.74
31.67
29.21
28.77
28.6
28.43
0.040844298
0.021069265
-0.040237297
-0.014780973
-0.044735406
0.104797259
0.043163608
-0.024281467
-0.019553073
0.047138047
-0.029433589
0.040519878
-0.10164095
0.063794984
0.030240902
-0.027114428
-0.007926362
-0.04871134
-0.040639393
0.011861056
0.013117499
-0.00523416
-0.017169759
-0.051563821
-0.116161616
-0.079663866
-0.005843682
0.045187362
-0.017574692
0.000357782
-0.018240343
0.034972678
-0.049982401
-0.011856243
-0.017622797
-0.011450382
0.017760618
0.042867982
0.027646417
0.134867257
0.040548971
0.011390887
-0.061351512
-0.077676034
-0.015063334
-0.005908933
-0.005944056
1101.6
1102.66
1064.88
1077.96
1022.58
1076.76
1117.51
1091.6
1064.88
1089.41
1087.69
1135.68
1110.88
1186.69
1217.28
1192.13
1194.37
1178.1
1166.59
1159.9
1149.99
1138.7
1104.49
1109.17
1075.51
1066.19
1073.87
1091.76
1136.03
1144.98
1115.1
1126.48
1102.47
1106.41
1105.98
1091.49
1091.38
1093.48
1069.3
1036.19
1079.6
1087.68
1071.49
1025.21
1044.38
1068.3
1042.73
-0.017866695
0.000962237
-0.034262601
0.012283074
-0.051374819
0.05298363
0.037845017
-0.023185475
-0.024477831
0.023035459
-0.001578836
0.044121027
-0.021837137
0.068243195
0.025777583
-0.020660818
0.00187899
-0.013622244
-0.009769969
-0.005734663
-0.00854384
-0.009817477
-0.030043032
0.00423725
-0.030347016
-0.008665656
0.007203219
0.016659372
0.040549205
0.007878313
-0.026096526
0.010205363
-0.021314182
0.003573793
-0.000388644
-0.013101503
-0.00010078
0.001924169
-0.022112887
-0.030964182
0.041893861
0.007484253
-0.014884893
-0.04319219
0.018698608
0.022903541
-0.023935224
8/31/2009
8/24/2009
8/17/2009
8/10/2009
8/3/2009
7/27/2009
7/20/2009
7/13/2009
7/6/2009
6/29/2009
6/22/2009
6/15/2009
6/8/2009
6/1/2009
5/26/2009
5/18/2009
5/11/2009
5/4/2009
4/27/2009
4/20/2009
4/13/2009
4/6/2009
3/30/2009
3/23/2009
3/16/2009
3/9/2009
3/2/2009
2/23/2009
2/17/2009
2/9/2009
2/2/2009
1/26/2009
1/20/2009
1/12/2009
1/5/2009
12/29/2008
12/22/2008
12/15/2008
12/8/2008
12/1/2008
11/24/2008
11/17/2008
11/10/2008
11/3/2008
10/27/2008
10/20/2008
10/13/2008
27.65
29.11
28.78
28.1
28.42
24.19
23.73
21.87
19.25
17.97
19.2
19.27
20.44
21.16
18.87
18.9
19.61
22.17
20.93
19.74
18.48
18.36
18.64
17.97
15.37
14.38
12.08
12.15
12.84
9.97
10.88
10.25
11.37
12.16
12.57
9.89
8.89
9.96
10.35
10.6
10.58
8.19
9.38
10.05
10.72
10.74
13.98
-0.027435807
0.052802893
-0.011336311
-0.023627519
0.0113879
-0.148838846
-0.019016122
-0.078381795
-0.119798811
-0.066493506
0.068447412
0.003645833
0.060716139
0.035225049
-0.108223062
0.001589825
0.037566138
0.13054564
-0.055931439
-0.056856187
-0.063829787
-0.006493506
0.015250545
-0.035944206
-0.144685587
-0.064411191
-0.159944367
0.005794702
0.056790123
-0.223520249
0.091273821
-0.057904412
0.109268293
0.069481091
0.033717105
-0.213206046
-0.101112235
0.120359955
0.039156627
0.024154589
-0.001886792
-0.225897921
0.145299145
0.071428571
0.066666667
0.001865672
0.301675978
1016.4
1028.93
1026.13
1004.09
1010.48
987.48
979.26
940.38
879.13
896.42
918.9
921.23
946.21
940.09
919.14
887
882.88
929.23
877.52
866.23
869.6
856.56
842.5
815.94
768.54
756.55
683.38
735.09
770.05
826.84
868.6
825.88
831.95
850.12
890.35
931.8
872.8
887.88
879.73
876.07
896.24
800.03
873.29
930.99
968.75
876.77
940.55
-0.025251024
0.012327824
-0.002721274
-0.02147876
0.006363971
-0.02276146
-0.008324219
-0.03970345
-0.065133244
0.019667171
0.025077531
0.00253564
0.027115921
-0.006467909
-0.0222851
-0.03496747
-0.00464487
0.052498641
-0.055648225
-0.012865804
0.003890422
-0.0149954
-0.016414495
-0.031525223
-0.058092507
-0.01560101
-0.096715353
0.075668003
0.047558802
0.073748458
0.050505539
-0.049182593
0.007349736
0.021840255
0.047322731
0.046554726
-0.063318309
0.017277727
-0.009179168
-0.004160367
0.023023274
-0.107348478
0.091571566
0.066071981
0.040558975
-0.094947097
0.072744277
10/6/2008
9/29/2008
9/22/2008
9/15/2008
9/8/2008
9/2/2008
8/25/2008
8/18/2008
8/11/2008
8/4/2008
7/28/2008
7/21/2008
7/14/2008
7/7/2008
6/30/2008
6/23/2008
6/16/2008
6/9/2008
6/2/2008
5/27/2008
5/19/2008
5/12/2008
5/5/2008
4/28/2008
4/21/2008
4/14/2008
4/7/2008
3/31/2008
3/24/2008
3/17/2008
3/10/2008
3/3/2008
2/25/2008
2/19/2008
2/11/2008
2/4/2008
1/28/2008
1/22/2008
1/14/2008
1/7/2008
12/31/2007
12/24/2007
12/17/2007
12/10/2007
12/3/2007
11/26/2007
11/19/2007
14.83
18
20.64
20.79
18.43
18.12
18.31
18.44
19.69
18.65
21.42
22.52
21.38
21.04
22.51
24.44
26.09
26.93
28.25
28.75
27.38
28.81
32.5
34.68
30.92
32.67
31.76
33.4
32.01
32.18
30.72
33.58
34.64
36.23
38.55
38.81
40.17
37.01
34.57
36.96
37.16
40.77
41.73
39.77
42.19
42.15
39.94
0.060801144
0.2137559
0.146666667
0.007267442
-0.113516114
-0.016820402
0.010485651
0.007099945
0.067787419
-0.05281869
0.148525469
0.051353875
-0.05062167
-0.015902713
0.06986692
0.085739671
0.067512275
0.032196244
0.049015967
0.017699115
-0.047652174
0.052227904
0.128080528
0.067076923
-0.108419839
0.056597671
-0.027854301
0.05163728
-0.041616766
0.00531084
-0.045369795
0.093098958
0.031566409
0.045900693
0.06403533
0.006744488
0.035042515
-0.078665671
-0.065928128
0.069135088
0.005411255
0.09714747
0.023546726
-0.046968608
0.060849887
-0.000948092
-0.052431791
899.22
1099.23
1213.27
1255.08
1251.7
1242.31
1282.83
1292.2
1298.2
1296.32
1260.31
1257.76
1260.68
1239.49
1262.9
1278.38
1317.93
1360.03
1360.68
1400.38
1375.93
1425.35
1388.28
1413.9
1397.84
1390.33
1332.83
1370.4
1315.22
1329.51
1288.14
1293.37
1330.63
1353.11
1349.99
1331.29
1395.42
1330.61
1325.19
1401.02
1411.63
1478.49
1484.46
1467.95
1504.66
1481.14
1440.7
-0.043942374
0.222426103
0.103745349
0.03446059
-0.002693055
-0.007501798
0.032616658
0.007304163
0.004643244
-0.001448159
-0.027778635
-0.002023312
0.002321588
-0.016808389
0.0188868
0.012257503
0.030937593
0.031944033
0.000477931
0.029176588
-0.017459547
0.035917525
-0.026007647
0.01845449
-0.011358653
-0.005372575
-0.041357088
0.028188141
-0.040265616
0.010865102
-0.031116727
0.004060118
0.028808462
0.016894253
-0.002305799
-0.013851954
0.048171323
-0.046444798
-0.00407332
0.057221983
0.007573054
0.047363686
0.004037904
-0.011121889
0.025007664
-0.015631438
-0.027303293
11/12/2007
11/9/2007
44.4
42.51
0.111667501
-0.042567568
1458.74
1453.7
0.012521691
-0.003455037
Beta WFMI
0.4
y = 1.0866x + 4E-05
R = 0.3036
0.3
0.2
0.1
Beta WFMI
Linear (Beta WFMI)
0
-0.1
0.05
0.1
0.15
0.2
0.25
-0.2
-0.3
Date
11/22/2010
11/15/2010
11/8/2010
11/1/2010
10/25/2010
10/18/2010
10/11/2010
10/4/2010
9/27/2010
9/20/2010
9/13/2010
9/7/2010
8/30/2010
8/23/2010
8/16/2010
8/9/2010
8/2/2010
Yhat estimated
WFMI Return
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
TRUE
0.009472718
-0.000435163
0.024173564
-0.037715216
-0.000129501
-0.006292164
-0.010163027
-0.017598903
0.002339294
-0.021796473
-0.015448181
-0.004899832
-0.039235856
0.007282389
0.007700767
0.042713351
(Y-Yhat) Residuals
Total Variation (Y(Actual - Predicted) Ybar)
-0.037126408
0.025593772
-0.053409586
-0.088466362
0.003651514
-0.03356745
-0.087226007
0.089915941
-0.002339294
0.022335992
-0.02822936
0.03844931
0.013049276
0.02128904
-0.015870702
-0.041065904
-0.029816076
0.022996223
-0.031398407
-0.128343964
0.001359627
-0.042021999
-0.099551419
0.070154653
-0.002162385
-0.001622865
-0.045839926
0.031387093
-0.028348965
0.026409043
-0.01033232
-0.000514939
7/26/2010
7/19/2010
7/12/2010
7/6/2010
6/28/2010
6/21/2010
6/14/2010
6/7/2010
6/1/2010
5/24/2010
5/17/2010
5/10/2010
5/3/2010
4/26/2010
4/19/2010
4/12/2010
4/5/2010
3/29/2010
3/22/2010
3/15/2010
3/8/2010
3/1/2010
2/22/2010
2/16/2010
2/8/2010
2/1/2010
1/25/2010
1/19/2010
1/11/2010
1/4/2010
12/28/2009
12/21/2009
12/14/2009
12/7/2009
11/30/2009
11/23/2009
11/16/2009
11/9/2009
11/2/2009
10/26/2009
10/19/2009
10/12/2009
10/5/2009
9/28/2009
9/21/2009
9/14/2009
9/8/2009
TRUE
TRUE
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11/19/2007
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11/12/2007 TRUE
11/9/2007 TRUE
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Explained Variation
Regression (Yhat Ybar)
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Roger G.

Ibbotson & Rex Sinquefield

Roger G. Ibbotson & Rex Sinquefield

Expected Return and SD for 1 stock

Estimated Stock A Estimated Stock B

Expected Return based on Estimations both from p

Stadard Deviation (Measure of total risk) based on

ased on Estimations both from past stock data and

(Measure of total risk) based on Estimations both

Expected Return and SD for 1 stock

Estimated Stock A Estimated Stock B

Individual Expected Return (Type of

Expected Return based on Estimations both from p

Individual Standard Deviation

0.212047165 Total Risk

Stadard Deviation (Measure of total risk) based on

ased on Estimations both from past stock data and

(Measure of total risk) based on Estimations both

Expected Return and SD for portfolio

Estimated Return for

Expected Return and SD for portfolio

Estimated Stock A Estimated Stock B

Estimated Return for

Sep 30, 2004, Merck announced recall

Beg (Close Day Before)

Sep 30, 2004, Merck announced recall

Beg (Close Day Before)

S & P Weely Returns WFMI Weely Returns

Beta For WFMI

WFMI Weely Returns for Lat 4 Years

S & P Weely Returns WFMI Weely Returns

S & P Weely Returns for Lat 4 Years

Beta For Porfolio

Amount Invetsed Expected Return Beta

Beta For Porfolio

Amount Invetsed Expected Return Beta

Risk Reward Ratio

Reward To Risk Ratio => (E(RA) - Rf)/BA

Reward To Risk Ratio => (E(RB) - Rf)/BB

Risk Reward Ratio

Reward To Risk Ratio => (E(RA) - Rf)/BA

Reward To Risk Ratio => (E(RB) - Rf)/BB

Stock A is offering a 8.75% return for 1 unit of Systemati

Stock B is offering a 11.67% return for 1 unit of Systemat

urn for 1 unit

urn for 1 unit

CAPM => E(RA) = Rf + (E(RM)-Rf)*BA

CAPM => E(RB) = Rf + (E(RM)-Rf)*BB

Beta of 1, asset should earn 2.00% + 9.00%*1 = 11.00%Beta of 2, as

2 Beta of 2, asset should earn 2.00% + 9.00%*2 = 20.00%

There is more reward than the model suggests there should be at th

% + 9.00%*1 = 11.00%Beta of 2, asset should earn 2.00% + 9.00%*2 = 20.00%

Market Risk Premium = E(RM) - Rf

CAPM => E(RA) = Rf + (E(RM)-Rf)*BA

CAPM => E(RB) = Rf + (E(RM)-Rf)*BB

Expected Return using CAPM is higher than the Expected R

Expected Return using CAPM is lower than the Expected R

Beta of 1, asset should earn 2.00% + 9.00%*1 = 11.00%Beta of 2, as

2 Beta of 2, asset should earn 2.00% + 9.00%*2 = 20.00%

There is more reward than the model suggests there should be at th

% + 9.00%*1 = 11.00%Beta of 2, asset should earn 2.00% + 9.00%*2 = 20.00%

CAPM ==> E(RA) = RF + (E(RM) - Rf)*BA

CAPM Pricing (Return)

% + 9.00%1 = 11.00%Beta of 2, asset should earn 2.00% + 9.00%2 = 20.00%

% + 9.00%1 = 11.00%Beta of 2, asset should earn 2.00% + 9.00%2 = 20.00%

Rf = (0.1051.3 - 0.130.75)/(1.3 - 0.75)

Rf = (0.1051.3 - 0.130.75)/(1.3 - 0.75)