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Risk, return, and Beta estimation (Middle Ltd.)

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TABLE 1: Market Data

Middle Ltd Extra Inc.
Year Market Index Stock Price Dividend Stock Price Dividend

0 7500.00 30.00 75.00
1 7835.76 30.68 0.74 75.60 5.30
2 8715.18 36.49 0.76 76.32 5.37
3 9120.94 42.60 0.79 77.64 5.62
4 9669.53 48.98 0.80 77.65 5.87
5 10856.36 56.43 0.83 78.69 6.33
6 10824.76 61.94 0.86 79.72 6.84
7 11949.08 64.46 0.86 81.18 7.42
8 12569.53 63.52 0.86 82.34 8.15
9 12106.20 70.91 0.90 83.65 8.77
10 13500.18 70.64 0.90 84.29 9.52

a. Compute the dollar return and the holding period return for the market, Middle Ltd. and Extra Inc.

b. Compute the arithmetic average, the geometric average, and the standard deviation of returns for the market, Middle Ltd. and Extra Inc.

c. Estimate the risk (standard deviation) and return (arithmetic return) of a portfolio consisting of 65% invested in Middle Ltd. and the remainder in Extra Inc.

d. Which is a more attractive investment: Middle Ltd.? Extra Inc.? Or the portfolio consisting of Middle Ltd. and Extra Inc.?

e. Estimate the betas (β) for Middle Ltd. and Extra Inc.

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