the meaning of the index and market models. The concept of the market model is that rate of return surprises on a stock are proportional to corresponding surprises on the market index portfolio, again with proportionality constant . 5. Merrill Lynchs alpha is related to the CAPM alpha by   Merrill CAPM (1 )rf   For GM, Merrill .14%, .80, and we are told that rf was .6%. Thus   CAPM .14% (1 .80).6% .02%   GM still performed well relative to the market and the index model. It beat its "benchmark" return by an average of .018% per month. 6. The industries with positive adjustment factors are most sensitive to the economy. Their betas would be expected to be higher because the business risk of the firms is higher. In contrast, the industries with negative adjustment factors are in business fields with a lower sensitivity to the economy. Therefore, for any given financial pro- file, their betas are lower. III. Equilibrium In Capital Markets 10. Single−Index and Multifactor Models The McGraw−Hill Companies, 2001           CHAPTER 10 Single-Index and Multifactor Models 319       E-INVESTMENTS: COMPARING VOLATILITIES AND BETA COEFFICIENTS Go to Yahoo finance at the following address: http://finance.yahoo.com. Using the Symbol Lookup function, find the ticker symbols for Texas Instruments, Intel Corpora- tion, and Advanced Energy Industries. Once you have the tickers, return to the home page for Yahoo finance and get quotes for all of the stocks by entering the ticker symbol in the Get Quote function dialog box and use the pull down menu to the right of the Get Quotes box to ask for Charts. When the chart appears change the period from one to two years and use the Com- pare function, adding the other two ticker symbols and the S&P index. Hit the Compare button and examine your results. You should get a graph that looks similar to the one printed below. Using the graph for comparison, which of the securities would you predict to have a beta coefficient in excess of 1.0? Which of the companies would you