For instructions on using Thomson ONE, refer to the instructions provided with the Thomson ONE problems at the end of Chapters 1–6 or to “A Guide for Using Thomson ONE.” P7-26. Determine the beta of a...

For instructions on using Thomson ONE, refer to the instructions provided with the Thomson ONE problems at the end of Chapters 1–6 or to “A Guide for Using Thomson ONE.” P7-26. Determine the beta of a portfolio consisting of Priceline.com Inc. (ticker: PCLN), Johnson & Johnson (U:JNJ), Home Depot (U:HD), and Goodyear Tire & Rubber Company (GT). You invest equal amounts of capital in each stock. How does the beta of this portfolio compare with the individual betas? Explain. Instead of investing equal amounts of capital in each stock, you decide to short shares worth $1,000 in each of the two least risky stocks (of the above four stocks) and invest $2,000 each in the two most risky stocks. How do you think the beta of this new portfolio will compare with the individual stock betas? Calculate the beta of this new portfolio and check if it matches your expectations. Consider another alternate portfolio. Now you short shares worth $1,000 in each of the two most risky stocks and invest $2,000 each in the two least risky stocks. How do you think the beta of this new portfolio will compare with the individual stock betas? Calculate the beta of this new portfolio and check if it matches your expectations. Do you think this portfolio will ever be profi table? If so, when? P7-27. Determine whether the stock of Hershey Foods (ticker: HSY) was mispriced (either underpriced or overpriced) at any time over the last fi ve years. Assume that the beta for Hershey Foods stayed constant over the last fi ve years and use the latest available beta. Further, assume that the S&P 500 Composite Index (DSMnemonic: S&PCOMP) proxies for the market portfolio and calculate the annual returns for the index over the last fi ve years. You can access the three month T-bill yields from Yahoo! Finance (http://fi nance.yahoo.com).5 Use the Capital Asset Pricing Model (CAPM) to estimate the expected annual stock returns for Hershey Foods for each year. Compare the expected stock returns to the actual annual returns for each year and determine if the stock was mispriced.