One problem with calculating expected returns using the CAPM or any other model is the reliability of beta. Different sample periods and return intervals (e.g., monthly versus daily) can give rise to different beta estimates. Choose a stock and calculate its beta using different sample periods and compare those results to the published beta at finance.yahoo.com.

1. Identify one particular firm and download five years of daily stock prices for that stock. Data sources are provided by the text web links.
2. Download five years of daily price data for the Standard and Poor's 500 Index. (At finance.yahoo.com the data are listed under the ticker symbol SPX.)
3. Compute the beta for your stock using sample periods of the most recent six months, 1 year, 2 years, 3 years, 4 years, and 5 years.
4. Which of these time frames most closely approximates the beta provided by Yahoo?

Fama and French have developed an empirically motivated model of risk and return. Their three-factor model generally predicts returns better than the CAPM. Conduct a comparison of predicted returns using both the CAPM and the three-factor model. Conduct your comparison as follows:

1. Review the Ken French Web site and download the various factor premiums into a spreadsheet. French's Web site is at mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html.
2. Retrieve all the other necessary data to calculate a CAPM return (e.g., betas and risk-free rates) and a three-factor model return for five stocks. You can use any of the Web sites listed in the text.
3. Compute the expected return on each stock using the CAPM and the three-factor model.
4. Compare the expected returns. How closely are they aligned?