) USING THE DATA PROVIDED IN EXHIBIT 1 AND ASSUMING PERFECT MARKETS, THE CALCULATED BETA FOR U

1.) Using the data provided in Exhibit 1 and assuming perfect markets, the calculated beta

for U.S. real estate is closest to:

A.

1.08.

B.

0.38.

C.

0.58.

Answer = C

β

i

= Cov (R

i

,R

M

)/Var(R

M

)

Note that covariance is given as 0.0075.

Find Var(R

M

) by using the Sharpe ratio = RP

M

/σ

M

and solve for σ

M

Expected return – Risk-free rate = RP

M