Average return = (10% + 2% + 4% + 6% + 8%)/5 = 6%
𝜎2 =
1
∗ ((0.10 − 0.06)2 + (0.02 − 0.06)2 + (0.04 − 0.06)2
5−1
+ (0.06 − 0.06)2 + (0.08 − 0.06)2 ) = 10
Standard deviation:
𝜎 = √10 = 3.16
𝑅𝐸 = 𝑅𝐹 + 𝛽 ∗ (𝑅𝑀 − 𝑅𝐹 )
6% = 2% + 𝛽 ∗ (9% − 2%)
𝛽=
4
= 0.57
7