6.

(Measuring risk and rates of return)

1. Given the holding-period returns shown here, compute the average returns and the standard deviations for the Zemin Corporation and for the market.

   Month	Zemin Corp.	Market
   1	6%	4%
   2	3	2
   3	–1	1
   4	–3	–2
   5	5	2
   6	0	2

2. If Zemin’s beta is 1.54 and the risk-free rate is 8 percent, what would be an appropriate required return for an investor owning Zemin? (Note: Because the returns of Zemin Corporation are based on monthly data, you will need to annualize the returns to make them compatible with the risk-free rate. For simplicity, you can convert from monthly to yearly returns by multiplying the average monthly returns by 12.)
3. How does Zemin’s historical average return compare with the return you believe to be a fair return, given the firm’s systematic risk

Prepare a 150 -word summary in which you compare and contrast conclusions by utilizing expected return, standard deviation, and the capital asset pricing model.

Make a recommendation to management about which technique is most appropriate from a risk measurement standpoint.

Support your recommendations with calculations from the problems Foundations of Finance