(i) Based on the data in Table

(i) Based on the data in Table 10.6, estimate which of the following investments you expect to lose the most in the event of a severe market down turn:

(1) A $2000 investment in Hershey,

(2) a $1500 investment in Macy’s, or

(3) a $1000 investment in Caterpillar.

(ii) Suppose the market portfolio is equally likely to increase by 20% or decrease by 13%.

a. Calculate the beta of a firm that goes up on average by 39% when the market goes up and goes down by 29% when the market goes down.

b. Calculate the beta of a firm that goes up on average by 13% when the market goes down and goes down by 28% when the market goes up.

c. Calculate the beta of a firm that is expected to go up by 4% independently of the market.

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