Exhibit 8.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) $$\begin{array}{l}
\quad\quad\quad\quad\quad\quad\quad\quad\text { Rates of Return }\
\begin{array} { c c c }
\text { Year } & \text { RA Computer } & \text { Market Index } \
\hline 1 & 13 & 17 \
2 & 9 & 15 \
3 & - 11 & 6 \
4 & 10 & 8 \
5 & 11 & 10 \
6 & 6 & 12
\end{array}
\end{array}$$
-Refer to Exhibit 8.1. Compute the intercept of the characteristic line for RA Computer.
A)-9.41
B)11.63
C)4.92
D)-4.92
E)-7.98

Question

Exhibit 8.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) $$\begin{array}{l}
\quad\quad\quad\quad\quad\quad\quad\quad\text { Rates of Return }\
\begin{array} { c c c } 
\text { Year } & \text { RA Computer } & \text { Market Index } \
\hline 1 & 13 & 17 \
2 & 9 & 15 \
3 & - 11 & 6 \
4 & 10 & 8 \
5 & 11 & 10 \
6 & 6 & 12
\end{array}
\end{array}$$
-Refer to Exhibit 8.1. Compute the intercept of the characteristic line for RA Computer.
A)-9.41
B)11.63
C)4.92
D)-4.92
E)-7.98

Quizplus · Accepted Answer

The intercept of the characteristic line is the expected return on the stock when the market return is zero. To calculate the intercept, we can use the following formula:Intercept = Average return on stock - Beta * Average return on marketFrom Exhibit 8.1, we can see that the average return on RA Computer is 9.41% and the average return on the market index is 11.63%. We can also calculate the beta of RA Computer using the following formula:Beta = Covariance of stock return and market return / Variance of market returnFrom Exhibit 8.1, we can calculate the covariance of RA Computer return and market return as 11.63% and the variance of market return as 14.44%. Therefore, the beta of RA Computer is 0.805.Substituting these values into the formula for the intercept, we get:Intercept = 9.41% - 0.805 * 11.63% = -9.41%Therefore, the intercept of the characteristic line for RA Computer is -9.41%.

Exhibit 81 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

Exhibit 81
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)