A. Some people suggest that the idea of an equity beta is more of a theoretical concept and not of much practical use. They say it is based on unrealistic assumptions and cannot be accurately measured. Provide a response.
B. Bobbi Financials is analyzing the performance of a number of particular assets? It has derived an estimate of Beta for the assets based on its own research which it believes is far superior to the publicly available estimates, or even that made available from research firms. It has the following estimates of Beta, as well as estimates of the expected return for the assets based on market information. It believes you should use the 10 year corporate bond rate (2.2%) as the risk free rate, and it estimates the underlying market rate as 8.5%.
With this information, and the following information explain which assets Bobbi Financials would recommend for its clients to buy, and which to sell - and why?
Beta Expected Return
Asset 1 1.6 11.9%
Asset 2 0.5 9.3%
Asset 3 0.8 7.5%
Asset 4 1.1 11.1%
Asset 5 2.3 15.9%