1. Given the following results, indicate what will happen to the beta for Sophie Fashion Co., relative to the market proxy, compared to the beta relative to the true market portfolio:
YEARLY RATES OF RETURN
Year Sophie Fashion (%) Market Proxy (%) True Market (%)
|
1
|
10
|
8
|
6
|
|
2
|
20
|
14
|
11
|
|
3
|
-14
|
-10
|
-7
|
|
4
|
-20
|
-18
|
-12
|
|
5
|
15
|
12
|
10
|
Discuss the reason for the differences in the measured betas for Sophie Fashion Co. Does the suggested relationship appear reasonable? Why or why not?