Beta and Security Returns

Fidelity provides data on the risk and return of its funds at www.fidelity.com. Click on the Research link, then choose Mutual Funds from the sub-menu. In the Fund Evaluator section, choose Advanced Search. Scroll down on the page until you fine the Risk/Volatility Measures section and indicate that you want to screen for funds that have betas less than or equal to .50. Click on the Search Funds button to see the results. Click on the link that says View All Matching Fidelity Funds. Select five funds from the resulting list and click on the Compare button. Rank the five funds according to their betas and then according to their standard deviations. Do both lists rank the funds in the same order? How would you explain any difference in the rankings? Note the 1 Yr. return for one of the funds (use the load-adjusted return if it is available). Repeat the exercise to compare five funds that have betas greater than or equal to 1.50.

Market Risk and Risk Premium

Go to www.moneychimp.com/features/market_cagr.htm, which shows annual rates of return for the S&P 500 index since 1950. The site has a calculator that compares the average market return with the compound annual growth rate and calculates the standard deviation of the market's returns for a selected time period. Choose a period that interests you and enter the beginning and ending years. Click on the Calculate button. What was the standard deviation of the market's returns during this period? Choose a different time period and repeat the exercise. Compare the resulting standard deviations. Assuming that E(r_M) and r_f are held constant what would the CAPM imply about investors' average levels of risk aversion during these periods?