Exhibit 8.1
Use the Information Below for the Following Problem(S)
$$\begin{array} { c c c }
& { \text { Rates of Return } } \
\text { Year } & \text { RA Computer } & \text { Markat Index } \
\hline 1 & 13 & 17 \
2 & 9 & 15 \
3 & - 11 & 6 \
4 & 10 & 8 \
5 & 11 & 10 \
6 & 6 & 12
\end{array}$$
-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)
 $$\begin{array} { c c c } 
&  { \text { Rates of Return } } \
\text { Year } & \text { RA Computer } & \text { Markat Index } \
\hline 1 & 13 & 17 \
2 & 9 & 15 \
3 & - 11 & 6 \
4 & 10 & 8 \
5 & 11 & 10 \
6 & 6 & 12
\end{array}$$
-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 the stock - Beta * Average return on the marketFrom Exhibit 8.1, we can see that the average return on RA Computer is 9% and the average return on the market index is 10%. We can also calculate the beta of RA Computer using the following formula:Beta = Covariance of the stock return and the market return / Variance of the market returnFrom Exhibit 8.1, we can calculate the covariance of the stock return and the market return as 10.4 and the variance of the market return as 25.6. Therefore, the beta of RA Computer is 0.4.Substituting these values into the formula for the intercept, we get:Intercept = 9% - 0.4 * 10% = -1%Therefore, the intercept of the characteristic line for RA Computer is -1%.

Exhibit 81 Use the Information Below for the Following Problem(S)

Exhibit 81
Use the Information Below for the Following Problem(S)