1.Go to Chapter Resources on MyFinanceLab and use the data in the spreadsheet provided to estimate the beta of Nike and Dell stock based on their monthly returns from 2004–2008. (Hint: You can use the slope() function in Excel.)
2.Using the same data as in Problem 1, estimate the alpha of Nike and Dell stock, expressed as % per month. (Hint: You can use the intercept() function in Excel.)
3.Using the same data as in Problem 1, estimate the 95% confidence interval for the alpha and beta of Nike and Dell stock using Excel’s regression tool (from the data analysis menu).
4.In mid-2009, Ralston Purina had AA-rated, 6-year bonds outstanding with a yield to maturity of 3.75%.
a. What is the highest expected return these bonds could have?
b. At the time, similar maturity Treasuries has a yield of 3%. Could these bonds actually have an expected return equal to your answer in part (a)?
c. If you believe Ralston Purina’s bonds have 1% chance of default per year, and that expected loss rate in the event of default is 40%, what is your estimate of the expected return for these bonds?
5.In mid-2009, Rite Aid had CCC-rated, 6-year bonds outstanding with a yield to maturity of 17.3%. At the time, similar maturity Treasuries had a yield of 3%. Suppose the market risk premium is 5% and you believe Rite Aid’s bonds have a beta of 0.31. If the expected loss rate of these bonds in the event of default is 60%, what annual probability of default would be consistent with the yield to maturity of these bonds?