Listed below are the rental agencies in the Automobile Rental section in the phone directory. Also noted is whether the rental agency is local (L), national (N), and whether the agency rents pickup trucks (T). Note that an agency could provide more than one service. Some of the agencies are to be randomly selected and asked various questions regarding the service they provide.00 ADA Auto Rentals L 10 General Motors Rental System L,N,T01 Alamo Rent a Car L,N 11 Hertz Rent a Car L,N,T02 Avis Rent a Car L,N 12 Lee’s Sales and Service L,T03 Bill’s Towing L,T 13 National Car Rental L,N04 Budget Car and Truck Rental L,N,T 14 Quality Imports L05 Charlie’s Dodge L,T 15 Rent a Wreck L,T06 EZ Rent a Car L 16 Sears Car and Truck Rental L,N,T07 Enterprise L,N 17 Thrifty Car Rental L,N08 Ford Rental System L,N,T 18 Toyota Car Rental L,N,T09 Guardian Car Rentals L,N 19 Wagoner Motor Sales L,TUse Appendix B.6 – Table of Random Numbers for the following problems:a. Randomly select a sample of five rental agencies. Start with row two and column two. The number is 90935. Use the first two numbers starting with 90.b. Randomly select a second sample of five rental agencies starting at the bottom left corner of the table. The number is 11084. Use the far right two digits starting with 84.c. Randomly select a sample of six that consists of every third rental agency starting with 02.d. Select a sample of four rental agencies so that one of each type is included. Start at the top of column three. The number is 75997. Use the left two digits starting with 75.e. Randomly select a sample of five rental agencies that rent trucks. Start at the bottom of the third column of the table. The number is 78957. Use the far right two digits starting with 57.Randomly select a sample of two rental agencies that rent locally and nationally, but do not rent trucks. Start at the bottom of the fourth column of the table. The number is 77353. Use the second and third set of digits starting with 73.g. Use the table of random numbers to select your sample of five rental agencies. Specify in your answer where you started in the random number table and how you chose that starting point.

Question 2

The Beta for FLIR Systems

Joey Moss, a recent finance graduate, has just begun his job with the investment firm of Covili and Wyatt. Paul Covili, one of the firm’s founders, has been talking to Joey about the firm’s investment portfolio.

As with any investment, Paul is concerned about the risk of the investment as well as the potential return. More specifically, because the company holds a diversified portfolio, Paul is concerned about the systematic risk of current and potential investments. One position the company currently holds is stock in FLIR Systems, Inc. (FLIR). FLIR Systems designs, manufactures, and markets thermal imaging and infrared camera systems. Although better known for its military applications, the company has divisions that design products for other applications such as automotive night vision, commercial products that require minute temperature difference measurements, recreational marine usage, and firefighting.

Covili and Wyatt currently uses a commercial data vendor for information about its positions. Because of this, Paul is unsure exactly how the numbers provided are calculated. The data provider considers its methods proprietary, and it will not disclose how stock betas and other information are calculated. Paul is uncomfortable with not knowing exactly how these numbers are being computed and also believes that it could be less expensive to calculate the necessary statistics in-house. To explore this question, Paul has asked Joey to do the following assignments:

QUESTIONS 

• Go to finance.yahoo.com and download the ending monthly stock prices for FLIR Systems (FLIR) for the last 60 months. Be sure to use the adjusted closing price to account for any stock splits and dividend payments. Next, download the ending value of the S&P 500 index over the same period. For the historical risk-free rate, go to the St. Louis Federal Reserve website ( and find the three-month Treasury bill constant maturity rate. Download this file. What are the monthly returns, average monthly returns, and standard deviations for FLIR Systems stock, the three-month Treasury bill, and the S&P 500 for this period?
• Beta is often estimated by linear regression. A model often used is called the market model, which is: 

In this regression, Rt is the return on the stock and Rft is the risk-free rate for the same period. RMt is the return on a stock market index such as the S&P 500 index. αi is the regression intercept, and βi is the slope (and the stock’s estimated beta). εt represents the residuals for the regression. What do you think is the motivation for this particular regression? The intercept, αi, is often called Jensen’s alpha. What does it measure? If an asset has a positive Jensen’s alpha, where would it plot with respect to the SML? What is the financial interpretation of the residuals in the regression?

• Use the market model to estimate the beta for FLIR Systems using the last 60 months of returns (the regression procedure in Excel is one easy way to do). Plot the monthly returns on FLIR Systems against the index and also show the fitted line.
• Compare your beta for FLIR Systems to the beta you find on finance.yahoo.com. How similar are they? Why might they be different?