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1. What were the betas of Ford, Toyota, and Honda?
Step 1: Calculate the risk premium (excess return) for each firm for every month.
[Change cells: 5 5 $ 5]
[Select cells: G5:J5; In Home Tab select Fill - Right]
[Select cells: G5:J64; Ctrl-D]
G B F=−
2. In light of each firm’s exposure to the financial crisis in 2008-2009, does the value for Ford
compared to Honda and Toyota make sense to you?
3. What was the alpha of each firm?
Step 1: Recognize the equation for α, in expectations is:
( ) [ ( ) ]
s st ft s Mt ft
E r r E r r
= − − −
Step 2: Calculate the average historical risk premium for each firm.
Step 3: Calculate the CAPM predicted risk premium for each firm. For example, Ford:
Step 4: Take the difference between expected premium and CAPM predicted premium.
