Apply the CAPM. Assume the risk-free rate of return is the current yield on 5-year bonds.
Assume that the market's expected rate of return is 3% per year above this. Download 5 years of daily rate of return data on four funds: NAESX, VLACX, VUVLX, and VWUSX.
• What were the historical average rates of return?
• What were the historical market betas?
• What were the historical market betas, adjusted (shrunk) toward 1 by averaging with 1?
• How do these estimates compare to the market beta estimates of the financial website from which you downloaded the data?
• Does it appear as if these funds followed a CAPM-like relationship?