Exhibit 1201-046Cost of Capital at AmeritradeExhibit 1 Consolidated Annual Income Statements for the Fiscal Year Ending in September199719961995Net Revenues Transaction Income$51,936,902.00$36,469,561.00$23,977,481.00 Net Interest18,193,94611,477,8788,434,584 Other7,107,4926,391,3142,607,538 Total Net Revenues77,238,34054,338,75335,019,603

Expenses Excluding Interest Employee Compensation19,290,80814,049,6428,481,977 Commissions and Clearance3,320,2622,530,6422,516,796 Communications5,623,4683,685,5352,352,590 Occupancy and Equipment Cost5,422,8392,889,6541,626,725 Advertising and Promotion13,970,8347,537,2654,842,392 Provision for Losses59,000148,0141,428,663 Amortization of Goodwill363,002363,00294,152 Other7,763,0144,717,4062,846,280 Total Expenses Excluding Interest55,813,22735,921,16024,189,575

Income Before Income Taxes21,425,11318,417,59310,830,028

Taxes7,602,9647,259,2483,798,881

Net Income$13,822,149$11,158,345$7,031,147

EPS$1.00$0.87$0.55

Shares Outstanding13,768,88912,813,82312,813,823

Source: Ameritrade Annual Report, 1997.

Exhibit 2Cost of Capital at Ameritrade201-046Exhibit 2 Consolidated Annual Balance Sheets for the Fiscal Year Ending in September19971996ASSETSCash & Gash Equivalents$53,522,447.00$15,767,170.00Cash & Investments Segregated in Compliance with Federal Regulations319,763,921175,668,497Receivable from Brokers, Dealers, & Clearing Organizations17,823,64015,096,862Receivable from Customers & Correspondents325,407,147166,075,055Furniture, Equipment, & Leasehold Improvements8,709,9233,746,178Goodwill6,346,7636,709,765Equity Investments7,597,9727,157,783Other Investments5,000,0005,000,000Deferred Income Taxes39,314444,378Other Assets13,145,6166,013,544Total Assets$757,356,743$401,679,232

LIABILITIES & STOCKHOLDERS EQUITYLiabilities:Payable to Brokers, Dealers, & Clearing Organizations1,404,9991,193,479Payable to Customers & Correspondents666,279,440356,942,970Accounts Payable and Accrued Liabilities19,252,9317,221,008Notes Payable to Bank-4,853,000Income Taxes Payable3,430,279806,711

Total Liabilities690,367,649371,017,168Stockholders Equity:Class A Common Stock131,534114,494Class B Common Stock13,64413,644Additional Paid in Capital23,297,506809,665Retained Earnings43,546,41029,724,261Total Stockholders Equity66,989,09430,662,064Total Liabilities & Stockholders Equity$757,356,743$401,679,232

Source: Ameritrade Annual Report, 1997.

Exhibit 3201-046Cost of Capital at AmeritradeExhibit 3 Capital Market Return Data (Historical and Current)Prevailing Yields on US Government Securities (August 31, 1997)Annualized Yield to Maturity3-Month T-BiIls5.24%1-Year Bonds5.59%5-Year Bonds6.22%10-Year Bonds6.34%20-Year Bonds6.69%30-Year Bonds6.61%Historic Average Total Annual Returns on US Government Securities and Common Stocks (1950 -1996)Average Annual ReturnStandard DeviationT-Bills5.2%3.0%Intermediate Bonds a6.4%6.6%Long Term Bonds b6.0%10.8%Large Company Stocks c14.0%16.8%Small Company Stocks d17.8%25.6%Historic Average Total Annual Returns on US Government Securities and Common Stocks (1929 - 1996)Average Annual ReturnStandard DeviationT-Bills3.8%3.3%Intermediate Bonds a5.4%5.8%Long Term Bonds b5.5%9.2%Large Company Stocks c12.7%20.3%Small Company Stocks d17.7%34.1%

Source: Yields are from Datastream, historical data are from lbbotson Associates, SBBI 2000 Yearbook.a Portfolio of US Government bonds with maturity near 5 years.b Portfolio of US Government bonds with maturity near 20 years.c Standard and Poors 500 Stock Price Index.d A subset of small cap stocks traded on the NYSE (1926-1981); Dimensional Fund Advisors Small Company Fund (1982-1997).

Exhibit 4201-046 - 7 - Exhibit 4 Selected Data for Comparable FirmsDebt/Value Debt/Value(Market Values)(Book Values) BrokerageFirm Name (Industry)Current Avg 1992-1996Current Avg 1992-1996Revenues (%)

A G Edwards (Investment Services) a0.000.000.000.0057Bear Stearns (Investment Services)0.600.500.690.6035Charles Schwab Corp (Discount Brokerage)0.050.080.250.3082These companiesE*Trade (Discount Brokerage)0.00NA0.00NA95are similar toLehman Brothers (Investment Services)0.79NA0.800.79 b13AmeritradeMecklermedia (Internet)0.000.00 b0.000.00 b0Merrill Lynch & Co (Investment Services)0.570.520.770.6537Morgan Stanley Dean Witter (Investment Services)0.570.530.700.6312Netscape (Internet)0.00NA0.00NA0Paine Webber (Investment Service)0.510.530.630.5846Quick & Reilly Group (Discount Brokerage)0.000.000.000.0081Raymond James Financial (Investment Services)0.050.040.070.0651Waterhouse Investor Srvcs (Discount Brokerage)NA0.38NA0.70 c99Yahoo (Internet)0.00NA0.00NA0

Source: Compustat; Standard & Poors; company public filingsa lnvestment Services includes brokerage, asset management, investment banking, and trading.b Indicates average over 1993-1996.c indicates average over 1992-1995

Exhibit 5201-046Cost of Capital at AmeritradeExhibit 5 Stock Price Data for Discount Brokers

AmeritradeDateSharesPriceDividendStock Split

31-Mar-9713,15315.62530-Apr-9713,15312.500-0.20030-May-9713,15314.0000.12030-Jun-9714,51815.7500.12531-Jul-9714,51815.375-0.02429-Aug-9714,51818.8130.224

Charles SchwabDateSharesPriceDividendStock Split30-Sep-8729,12115.87530-Oct-8729,1217.875-0.50430-Nov-8729,1216.625-0.15931-Dec-8725,3886.000-0.09429-Jan-8825,3886.5000.08329-Feb-8825,3889.0000.38531 -Mar-8825,3887.375-0.18129-Apr-8825,3887.6250.03431-May-8825,3886.875-0.09830-Jun-8825,2947.2500.05529-Jul-8825,2947.5000.03431-Aug-8825,2946.750-0.10030-Sep-8825,3286.7500.00031-Oct-8825,3287.5000.11130-Nov-8825,3286.750-0.10030-Dec-8825,3546.7500.00029-Jan-8925,35410.2500.51929-Feb-8925,3548.625-0.15932 -Mar-8825,3548.8750.02929-Apr-8925,35410.1250.140831-May-8925,35411.7500.0300.163530-Jun-8925,35211.000-0.063829-Jul-8925,35216.5000.0300.502731-Aug-8925,35215.750-0.045530-Sep-8925,38614.000-0.111131-Oct-8925,38613.0000.030-0.069330-Nov-8925,38612.500-0.038530-Dec-8925,33213.8750.110029-Jan-9025,33213.5000.030-0.024929-Feb-9025,33215.2500.129633 -Mar-8825,33217.0000.114829-Apr-9025,33215.1250.030-0.108531-May-9025,33215.7500.041330-Jun-9025,09915.250-0.031729-Jul-9025,09913.6250.030-0.104631-Aug-9025,09912.625-0.073430-Sep-9025,25511.375-0.099031-Oct-9025,25512.6250.0400.113430-Nov-9025,25511.875-0.059430-Dec-9024,46411.375-0.042129-Jan-9124,46416.0000.0400.410129-Feb-9124,46418.2500.140634 -Mar-8824,46420.2500.109629-Apr-9124,46418.1250.040-0.10331-May-9124,46422.5000.24130-Jun-9124,43524.7500.10029-Jul-9124,43527.5000.0500.11331-Aug-9124,43528.3750.03230-Sep-9125,59631.1250.09731-Oct-9125,59637.7500.0600.21530-Nov-9125,59632.750-0.132Split adjustment30-Dec-9138,39430.3753 for 20.3913229-Jan-9238,39431.8750.0400.05129-Feb-9238,39433.2500.04335 -Mar-8838,47934.6250.04129-Apr-9238,47928.5000.060-0.17531-May-9238,47928.8750.01330-Jun-9238,62623.500-0.18629-Jul-9238,62624.6250.0600.05031-Aug-9238,62622.500-0.08630-Sep-9238,14918.000-0.20031-Oct-9238,14920.2500.0600.12830-Nov-9238,14924.8750.22830-Dec-9237,74126.1250.05029-Jan-9337,74130.2500.0600.16029-Feb-9337,74132.3750.07036 -Mar-8837,74136.5000.12729-Apr-9337,74132.7500.075-0.10131-May-9337,74135.2500.07630-Jun-9356,61228.5003 for 20.2133229-Jul-9356,61229.0000.0500.01931-Aug-9356,61232.8750.13430-Sep-9357,62534.5000.04931-Oct-9357,62534.6250.0500.00530-Nov-9357,81531.875-0.07930-Dec-9357,81532.3750.01629-Jan-9457,81529.5000.070-0.08729-Feb-9457,81527.500-0.06837 -Mar-8857,81526.875-0.02329-Apr-9457,81528.3750.0700.05831-May-9457,81530.2500.06630-Jun-9457,11424.750-0.18229-Jul-9457,11426.7500.0700.08431-Aug-9457,11430.7500.15030-Sep-9456,82929.625-0.03731-Oct-9456,82935.3750.0700.19630-Nov-9457,32531.875-0.09930-Dec-9457,32534.8750.09429-Jan-9557,32540.0000.0900.15029-Feb-9557,32544.3750.10938 -Mar-8885,98832.2503 for 20.0903229-Apr-9585,98834.2500.0600.06431-May-9585,98835.0000.02230-Jun-9585,89643.8750.25429-Jul-9585,89646.1250.0800.05331-Aug-9587,06146.6250.01130-Sep-95174,12229.0002 for 10.2442131-Oct-95174,12222.8750.040-0.21030-Nov-95174,67824.2500.06030-Dec-95174,67820.125-0.17029-Jan-96174,67825.1250.0400.25029-Feb-96174,67825.5000.01539 -Mar-88174,67825.8750.01529-Apr-96174,03224.5000.040-0.05231-May-96174,03224.250-0.01030-Jun-96174,98924.5000.01029-Jul-96174,98924.1250.050-0.01331-Aug-96174,98925.0000.03630-Sep-96175,16623.000-0.08031-Oct-96175,16625.0000.0500.08930-Nov-96175,16630.2500.21030-Dec-96175,17332.0000.05829-Jan-97175,17337.5000.17229-Feb-97175,17337.5000.0500.00140 -Mar-88175,17332.000-0.14729-Apr-97175,06836.6250.14531-May-97175,06840.6250.0500.11130-Jun-97175,81340.500-0.00329-Jul-97176,42247.0000.16031-Aug-97176,42242.7500.050-0.089Jan 92-Dec 960.0360.033450.1480.11513E*TradeDateSharesPriceDividendStock Split30-Aug-9629,39310.50030-Sep-9629,53913.1880.25631-Oct-9629,53911.125-0.15629-Nov-9629,53910.938-0.01731-Dec-9629,54511.5000.05131-Jan-9729,54517.6250.53328-Feb-9729,54524.0000.36231-Mar-9730,44018.000-0.25030-Apr-9730,44015.000-0.16730-May-9730,44017.6250.17530-Jun-9730,95819.6250.11331-Jul-9730,95830.5000.55429-Aug-9730,95832.1250.053

Quick & ReillyDateSharesPriceDividendStock Split

31-Jan-846,31817.62529-Feb-846,31815.0000.050-0.14630-Mar-846,31814.875-0.00830-Apr-846,31817.1250.15131-May-846,31817.3750.01529-Jun-846,31818.0000.0500.03931-Jul-846,31814.750-0.18131-Aug-846,31818.0000.0500.22428-Sep-846,31817.000-0.05631-Oct-846,31817.8750.05130-Nov-846,31815.2500.050-0.14431-Dec-846,31815.5000.01631-Jan-856,31823.3750.50829-Feb-856,31823.7500.1100.02130-Mar-856,31823.125-0.02630-Apr-856,31820.625-0.10831-May-856,31822.6250.0600.10029-Jun-856,31824.0000.06131-Jul-856,31824.1250.00531-Aug-856,31822.8750.060-0.04928-Sep-856,31820.125-0.12031-Oct-856,31822.2500.10630-Nov-856,31825.5000.0600.14931-Dec-856,31832.5000.27531-Jan-866,31836.3750.11929-Feb-866,31839.1250.1700.08030-Mar-866,31839.000-0.00330-Apr-866,31830.375-0.22131-May-8611,14933.3750.0700.10129-Jun-8611,14935.5000.06431-Jul-8611,14929.000-0.18331-Aug-8611,14928.7500.070-0.00628-Sep-8611,14923.875-0.17031-Oct-8611,14932.1250.34630-Nov-8611,14929.5000.070-0.08031-Dec-8611,14926.750-0.09331-Jan-8711,14936.1250.35029-Feb-8711,14936.8750.2000.02630-Mar-8711,14936.000-0.024xy30-Apr-8716,72421.3753 for 2-0.1093231-May-8716,72421.5000.0550.00829-Jun-879,47719.250-0.10531-Jul-879,47720.2500.05231-Aug-879,47724.6250.0550.21928-Sep-879,47723.000-0.06631-Oct-879,47712.125-0.47330-Nov-879,47711.6250.055-0.03731-Dec-879,47712.5000.07531-Jan-889,47712.6250.01029-Feb-889,47713.5000.1800.08430-Mar-889,45212.250-0.09330-Apr-889,45212.6250.03131-May-889,45211.5000.060-0.08429-Jun-889,45211.8750.03331-Jul-889,45211.500-0.03231-Aug-889,45211.2500.060-0.01728-Sep-889,45211.7500.04431-Oct-889,45211.7500.00030-Nov-889,45211.5000.060-0.01631-Dec-889,45210.875-0.05431-Jan-899,45215.0000.37929-Feb-899,45213.7500.060-0.07930-Mar-899,45213.250-0.03630-Apr-899,45213.000-0.01931-May-899,45216.1250.0600.24529-Jun-899,45214.000-0.13231-Jul-899,45216.5000.17931-Aug-899,45217.0000.0600.03428-Sep-899,45216.750-0.01531-Oct-899,45215.750-0.06030-Nov-899,45214.8750.060-0.05231-Dec-899,45213.625-0.08431-Jan-909,45212.000-0.11929-Feb-909,45213.6250.1300.14630-Mar-909,45213.250-0.02830-Apr-909,45213.000-0.01931-May-909,45215.2500.0700.17829-Jun-909,45214.000-0.08231-Jul-909,45213.500-0.03631-Aug-909,45211.3750.070-0.15228-Sep-909,45210.375-0.08831-Oct-909,4529.750-0.06030-Nov-909,45210.1250.0700.04631-Dec-909,43710.2500.01231-Jan-919,43713.1250.28029-Feb-919,43716.1250.0700.23430-Mar-919,21018.8750.17130-Apr-919,21017.500-0.07331-May-919,21017.7500.0700.01829-Jun-919,45217.000-0.04231-Jul-919,45219.6250.15431-Aug-919,45220.6250.0700.05528-Sep-919,21019.250-0.06731-Oct-919,21020.3750.05830-Nov-919,21020.0000.070-0.01531-Dec-919,22027.7500.38831-Jan-929,22027.500-0.00929-Feb-929,22028.5000.1800.04330-Mar-929,29228.6250.00430-Apr-929,29221.500-0.24931-May-929,29221.5000.0800.00429-Jun-929,29221.000-0.02331-Jul-929,29220.125-0.04231-Aug-929,29219.6250.080-0.02128-Sep-929,88420.1250.02531-Oct-929,88421.0000.04330-Nov-929,88425.3750.0800.21231-Dec-929,88424.750-0.02531-Jan-939,88427.0000.09129-Feb-939,88426.0000.220-0.02930-Mar-939,82427.1250.04330-Apr-939,82425.125-0.07431-May-939,82426.1250.1000.04429-Jun-9310,31528.8751.4430.16031-Jul-9310,62330.7500.06531-Aug-9310,62335.0000.1000.14128-Sep-9310,64336.2500.03631-Oct-9310,64335.875-0.01030-Nov-9310,67834.2500.100-0.04331-Dec-9311,21235.7501.7880.09631-Jan-9410,67835.375-0.01029-Feb-9411,23828.3750.270-0.19030-Mar-9411,23825.625-0.09730-Apr-9411,23826.3750.02931-May-9411,23826.8750.1200.02429-Jun-9411,16825.375-0.05631-Jul-9411,16824.750-0.02531-Aug-9411,12129.2500.1200.18728-Sep-9411,12125.875-0.11531-Oct-9411,11125.750-0.00530-Nov-9411,11124.7500.120-0.03431-Dec-9411,11128.3750.14631-Jan-9511,07530.8750.08829-Feb-9511,07535.0000.2900.14330-Mar-9511,07535.5000.01430-Apr-9511,07540.6250.14431-May-9511,07547.0000.15729-Jun-9516,61336.6250.1503for20.1743231-Jul-9516,61338.5000.05131-Aug-9516,61337.3750.100-0.02728-Sep-9516,61345.8750.22731-Oct-9524,92023.7503 for 2-0.2233230-Nov-9524,95225.3750.0700.07131-Dec-9524,95220.500-0.19231-Jan-9625,05623.2500.13429-Feb-9625,05626.2500.0800.13230-Mar-9625,05629.5000.12430-Apr-9625,05630.5000.03431-May-9625,05633.8750.0700.11329-Jun-9625,05632.500-0.04131-Jul-9625,17828.375-0.12731-Aug-9625,17829.2500.0800.03428-Sep-9625,17826.500-0.09431-Oct-9625,17826.250-0.00930-Nov-9625,17828.3750.0800.08431-Dec-9625,17829.8750.05331-Jan-9725,17336.6250.22629-Feb-9725,17335.0000.190-0.03930-Mar-9737,76020.8753 for 2-0.1053230-Apr-9737,76022.1250.06031-May-9737,76023.0000.0600.04229-Jun-9738,60623.2500.01131-Jul-9738,66426.2500.12931-Aug-9738,66434.2500.0600.307

Waterhouse Investor ServicesDateSharesPriceDividendStock Split29-May-872,5726.93830-Jun-872,5728.0000.15331-Jul-872,5728.2500.03131-Aug-872,5727.500-0.09130-Sep-872,5728.0000.06730-Oct-872,5726.250-0.21930-Nov-872,5726.000-0.04031-Dec-872,5725.250-0.12529-Jan-882,5724.500-0.14329-Feb-882,4824.7500.05631-Mar-882,4826.0000.26329-Apr-882,4825.875-0.02131-May-882,4826.2500.06430-Jun-882,4825.000-0.20029-Jul-882,4823.500-0.30031-Aug-882,4823.250-0.07130-Sep-882,4824.0000.23131-Oct-882,4823.375-0.15630-Nov-882,4823.5000.03730-Dec-882,4822.750-0.21431-Jan-892,4823.7500.36428-Feb-892,4723.7500.00031 -Mar-892,4724.7500.26728-Apr-892,4724.250-0.10531-May-892,4205.0000.17630-Jun-892,4206.0000.20031 -Jul-892,4206.0000.00031-Aug-892,4195.7500.120-0.02229-Sep-892,4195.625-0.02231-Oct-892,4195.375-0.04430-Nov-892,4175.000-0.07029-Dec-892,4174.500-0.10031-Jan-902,4174.375-0.02828-Feb-902,4203.750-0.14330-Mar-902,4204.2500.13330-Apr-902,4204.3750.02931-May-902,5724.250-0.02929-Jun-902,5724.7500.11831-Jul-902,5724.625-0.02631-Aug-902,3774.3750.150-0.02228-Sep-902,3774.250-0.02931-Oct-902,3774.000-0.05930-Nov-902,3703.750-0.06331-Dec-902,3703.625-0.03331 -Jan-912,3703.7500.03428-Feb-912,3204.5000.20028-Mar-912,3206.1250.36130-Apr-912,3207.0000.14331-May-912,3208.2500.17928-Jun-912,9008.0005 for 40.2125431-Jul-912,90010.3750.29730-Aug-912,94310.7500.1600.05230-Sep-912,94314.2500.32631-Oct-912,94314.000-0.01829-Nov-912,94315.5000.10731 -Dec-912,94327.5000.77431 -Jan-922,94326.500-0.03628-Feb-924,41521.7503 for 20.2313231-Mar-924,46625.3750.16730-Apr-924,46620.625-0.18729-May-924,46621.7500.05530-Jun-924,46617.125-0.21331 -Jul-924,46617.6250.02931-Aug-924,46613.7500.200-0.20930-Sep-924,84714.3750.04530-Oct-924,84715.6250.08730-Nov-924,84720.7500.32831-Dec-924,84720.500-0.01229-Jan-934,84725.2500.23226-Feb-934,84724.375-0.03531-Mar-936,07120.5005 for 40.0515430-Apr-936,07118.500-0.09828-May-936,07127.2500.47330-Jun-936,07233.5000.22930-Jul-936,07233.000-0.01531 -Aug-936,07242.6250.2500.29930-Sep-936,07250.1250.17629-Oct-936,07247.250-0.05730-Nov-939,10825.7503 for 2-0.1833231-Dec-939,15021.250-0.17531-Jan-949,15021.2500.00028-Feb-949,15020.500-0.03531-Mar-949,15017.625-0.14029-Apr-949,15016.000-0.09231-May-949,15015.250-0.04730-Jun-949,15013.375-0.12329-Jul-949,15013.000-0.02831-Aug-949,15017.0000.2000.32330-Sep-949,15014.125-0.16931-Oct-949,15016.1250.14230-Nov-949,15014.250-0.11630-Dec-949,15412.250-0.14031-Jan-959,15414.5000.18428-Feb-959,15417.3750.19831-Mar-959,15416.125-0.07228-Apr-959,15416.1250.00031-May-959.15417.5000.08530-Jun-959,15423.0000.31431-Jul-959,15427.6250.20131-Aug-959,15428.6250.2500.04529-Sep-9511,44225.5005 for 40.1145431-Oct-9511,44219.750-0.22530-Nov-9511,44219.7500.00029- Dec-9511,45224.7500.25331-Jan-9611,45223.625-0.04529- Feb-9611,45224.6250.04229-Mar-9611,45233.3750.35530-Apr-9611,45236.2500.08631-May-9611,45836.6250.01028-Jun-9611,45837.1250.01431-Jul-9611,50137.6250.01330-Aug-9611,50137.3750.220-0.00130-Sep-9611,50137.8750.013

Source: Center for Research on Security Prices, University of Chicago.

Exhibit 6Exhibit 6 Stock Return Data for Investment Service Firms, Internet Firms, and the Aggregate Stock Market

MorganVW NYSE,EW NYSE,DateA G Edwards Bear Stearns Lehman Bros Meckler-Merrill Lynch Stanley DeanNetscapePaineRaymondYahooAMEX, &AMEX, &mediaWitterWebberJamesNasdaq aNasdaq a

31-Jan-840.026040-0.013280-0.0428600.040000-0.0129100.00576029-Feb-84-0.111680-0.167330-0.175370-0.102560-0.039170-0.05381030-Mar-84-0.042290-0.0191400.073300-0.0500000.0134500.00710030-Apr-840.012050-0.0117100.080510-0.0676700.002730-0.01942031-May-84-0.017860-0.044780-0.113730-0.072580-0.052350-0.05077029-Jun-840.1006100.1197900.084960-0.0434800.0235900.01380031-Jul-840.016670-0.076280-0.0901600.018180-0.020350-0.04745031-Aug-840.1781400.3045700.1891900.2142900.1125700.08962028-Sep-84-0.032710-0.077820-0.105300-0.0294100.0003900.00027031-Oct-840.0241500.0236300.0297900.0151500.000130-0.02089030-Nov-84-0.066040-0.091290-0.041320-0.179100-0.010620-0.03141031-Dec-84-0.017170-0.013700-0.046550-0.0545500.0237900.00505031-Jan-850.3316100.2777800.4318200.4307700.0857300.12276028-Feb-85-0.007780-0.023190-0.0222200.0270300.0170000.04714029-Mar-85-0.036860-0.0858200.0266200.013160-0.001930-0.00853030-Apr-85-0.094260-0.034290-0.123810-0.025970-0.002180-0.01129031-May-850.0859700.0893600.0652200.0133300.0558700.02293028-Jun-850.1025000.011720-0.0401400.0394700.0171900.00347031-Jul-85-0.0646400.040930-0.0925300.017720-0.0005400.01951030-Aug-85-0.036590-0.052240-0.0384300.025000-0.004800-0.00341030-Sep-85-0.132490-0.141730-0.049180-0.048780-0.039650-0.05614031-Oct-850.0882400.1009200.0086200.0000000.0445700.01896029-Nov-850.099100-0.1034500.1275000.1974400.2564100.0692700.05327031-Dec-850.1418000.1935900.0223000.0035800.0159200.0430600.02913031-Jan-860.0397100.1567600.1527300.1071400.2888900.0098600.04340028-Feb-860.1493100.1308400.0365900.0683900.1034500.0728400.06236031-Mar-860.0839900.1287200.0122300.0363600.1718800.0538800.04772030-Apr-86-0.0868300.065640-0.1027200.051150-0.137430-0.100000-0.0080600.01584030-May-860.0260700.003620-0.0080800.0134200.051530-0.0074100.0508100.03663030-Jun-86-0.066370-0.168520-0.054610-0.062910-0.116500-0.0406000.0143000.00896031-Jul-86-0.067630-0.141920-0.039710-0.070670-0.010990-0.187500-0.059690-0.07361029-Aug-860.1046600.1603100.1451100.1490500.1759300.0384600.0663900.02211030-Sep-86-0.094340-0.145530-0.052810-0.119400-0.015590-0.092590-0.079140-0.06049031-Oct-860.1510400.2170500.1951200.1608300.1726900.0816300.0494400.02462028-Nov-86-0.022620-0.057320-0.074050-0.030890-0.075210-0.0566000.015170-0.00628031-Dec-86-0.040740-0.102160-0.075950-0.129190-0.063200-0.026800-0.026540-0.03453030-Jan-870.3349500.3181800.1986300.1129100.1785700.3195900.1283700.11682027-Feb-870.000000-0.022990-0.015430-0.048610-0.0335400.2890600.0476300.07495031-Mar-870.044950-0.024650-0.0029200.036500-0.0035000.2619400.0232400.03309030-Apr-87-0.122380-0.121020-0.1520500.005280-0.084210-0.116400-0.017130-0.01961029-May-87-0.023900-0.028990-0.0413800.020320-0.061150-0.1018000.0052200.00071030-Jun-87-0.1046500.0220900.010870-0.0034400.020490-0.0312000.0438300.02201031-Jul-870.073390-0.0073500.1003600.0234900.052210-0.0620700.0440500.03470031-Aug-870.0271800.1037000.0325700.0693700.0230500.1691200.0372300.01559030-Sep-87-0.0711300.080270-0.0317500.023730-0.029960-0.142640-0.020740-0.01551030-Oct-87-0.337840-0.400000-0.357380-0.337560-0.474900-0.352940-0.224870-0.27085030-Nov-87-0.174420-0.145830-0.153060-0.163930-0.021760-0.113640-0.072900-0.05230031-Dec-870.0333300.0239000.0914600.148460-0.128790-0.0384600.0704100.02794029-Jan-880.0806500.1445800.072630-0.0195100.1130400.1376000.0453400.07811029-Feb-880.0623900.1578900.0625000.1686600.109690-0.0352900.0516100.06201031-Mar-88-0.035460-0.054550-0.0643600.055560-0.0780100.089270-0.0170600.03437029-Apr-880.0294100.0194200.0000000.106880-0.038460-0.0674200.0110000.01525031-May-88-0.042860-0.0857100.031750-0.0862400.032320-0.0481900.000940-0.01702030-Jun-880.1594000.0937500.1139900.2751000.070310-0.0086100.0513900.04848029-Jul-88-0.006490-0.0673100.0139500.004720-0.0365000.025640-0.0071800.00055031-Aug-88-0.039220-0.041240-0.050460-0.0157200.038180-0.050000-0.027940-0.02371030-Sep-880.0840800.0286700.039020-0.0031900.0367600.0173700.0372800.01870031-Oct-88-0.0063300.0842100.0516400.051280-0.0283700.1576300.017650-0.01178030-Nov-88-0.0573200.029130-0.049550-0.036700-0.065400-0.069770-0.016400-0.03670030-Dec-880.042970-0.038100-0.0900500.0539700.0157500.1050000.0208000.01954031-Jan-890.1699300.1782200.2708300.0783100.1162800.1931800.0659400.06313028-Feb-89-0.0446900.001010-0.0371900.0324000.0280600.051430-0.0163600.00279031-Mar-89-0.0388300.025420-0.0472100.006110-0.047620-0.0090900.0215500.01703028-Apr-89-0.006130-0.0413200.040540-0.0550600.0142900.0183500.0485300.03068031-May-890.1543200.0687100.0606100.1376300.0707000.0900900.0396500.02737030-Jun-89-0.0034200.034190-0.061730-0.017010-0.0264900.069420-0.004980-0.00833031-Jul-890.1783800.1074400.2324600.1100000.2585000.1472900.0777200.03161031-Aug-890.0871600.034850-0.0394300.0626100.016430-0.0135100.0222800.01929029-Sep-890.008270-0.083970-0.108210-0.063830-0.1604300.009590-0.0017500.00447031-Oct-89-0.148150-0.075000-0.025100-0.069580-0.121020-0.122450-0.029380-0.05095030-Nov-890.103260-0.034950-0.0865800.050940-0.0142000.0155000.017850-0.00822029-Dec-89-0.0967500.009430-0.004740-0.0718100.000000-0.0610700.018280-0.01217031-Jan-90-0.115380-0.028040-0.133330-0.077370-0.037040-0.012360-0.070050-0.04581028-Feb-900.0559000.0607700.0000000.0295400.0387700.1487600.0149800.01575030-Mar-900.137410-0.038460-0.0333300.0082000.0447800.0754000.0241500.02204030-Apr-90-0.104170-0.020000-0.0344800.028460-0.042860-0.013420-0.028160-0.02672031-May-900.2034900.1792900.1385500.1292200.1197000.1189100.0888700.04665029-Jun-90-0.007920-0.009170-0.0476200.0246500.013420-0.036590-0.0043000.00538031-Jul-90-0.058820-0.0833300.061110-0.163230-0.0662300.000000-0.009380-0.02729031-Aug-90-0.081460-0.097780-0.132280-0.068180-0.113190-0.101270-0.091730-0.10979028-Sep-90-0.268570-0.142860-0.091460-0.121950-0.096770-0.116340-0.053870-0.08049031-Oct-900.046880-0.097220-0.046980-0.012630-0.151790-0.048000-0.012420-0.05633030-Nov-900.1194000.1249200.1071400.0927800.1267400.0840300.0659800.03665031-Dec-900.0957300.1250000.0709700.0259400.0377400.1445000.029540-0.00387031-Jan-910.2024500.1358000.1867500.1011500.0545500.0748300.0490400.08525028-Feb-910.1683700.1426100.1725900.1848700.3193100.2192400.0756900.13365028-Mar-910.1369400.1250000.2183400.1773000.1973700.2708300.0287800.07782030-Apr-910.0193100.0341900.089610-0.0150600.0549500.0573800.0033500.03102031-May-910.0757600.0946300.0860900.087560-0.0414600.0639500.0405900.03034028-Jun-91-0.099720-0.128000-0.064020-0.103110-0.142080-0.041090-0.044240-0.03450031-Jul-910.1988200.1100900.0814300.1612000.0955400.0342900.0468300.03492030-Aug-910.025220-0.0148800.0181800.0299700.0816300.0386700.0269100.02857030-Sep-910.2029000.0169500.1488100.0634900.1189200.114260-0.0110600.00867031-Oct-910.0763100.0583300.0725400.0812900.2029000.1052600.0177200.02386029-Nov-91-0.126870-0.039760-0.067630-0.016170-0.152610-0.125540-0.037270-0.02539031-Dec-910.2996600.1826100.2317700.1971800.3350700.2178200.1070400.03645031-Jan-92-0.0561100.066180-0.031710-0.110040-0.0160400.165530-0.0016500.14948028-Feb-92-0.0664300.080000-0.019650-0.0088500.080430-0.0035000.0132900.05201031-Mar-92-0.088760-0.077420-0.015660-0.013390-0.0454500.128840-0.023680-0.01412030-Apr-92-0.163220-0.006990-0.109090-0.110860-0.142860-0.1355100.013850-0.03289029-May-920.0987700.006690-0.0040800.0506900.049140-0.0864900.0065200.00550030-Jun-92-0.078430-0.0222200.041240-0.0243300.023670-0.014910-0.019240-0.03970031-Jul-92-0.006130-0.0454500.0198000.0972600.0693600.0060200.0399300.02728031-Aug-920.043460-0.014290-0.030580-0.075180-0.135350-0.071860-0.020760-0.02444030-Sep-92-0.0714300.0162600.020150-0.051850-0.106920-0.1130300.0124200.01193030-Oct-920.1153800.0240000.0938300.0312500.1408500.1167900.0109000.01632030-Nov-920.1666700.1003900.0957100.0755600.1972800.2091500.0401900.06773031-Dec-92-0.0638400.045110-0.0144900.0518900.010360-0.0324300.0175400.03565029-Jan-930.089950-0.0143900.0987400.0157000.0359000.1376500.0123300.06674026-Feb-93-0.019420-0.0058400.0466500.022080-0.054650-0.1379300.005450-0.00791031-Mar-930.0802000.0814800.0458700.1105000.0894700.0436600.0250100.03088030-Apr-93-0.0506900.089040-0.010530-0.064450-0.0724600.005490-0.025510-0.01276028-May-93-0.0524300.1333300.0794300.1023000.1364600.0382500.0294200.03795030-Jun-930.0515500.0502800.0693100.0514400.0737300.0033700.0051300.01197030-Jul-930.0637300.0266000.0740700.0198900.034330-0.057890-0.0007600.01410031-Aug-930.0101400.0399000.1189700.1793600.0672200.1544100.0393400.04040030-Sep-930.0825700.0421100.0103100.0497700.0195300.0873800.0006100.02579029-Oct-930.046610-0.111110-0.007400-0.096260-0.099620-0.0357100.0180400.04009030-Nov-93-0.0323900.018180-0.063230-0.084010-0.088510-0.027780-0.017350-0.02437031-Dec-93-0.032970-0.016850-0.074380-0.0139400.014080-0.0500000.0194500.01612031-Jan-940.0163000.1142900.0732100.1219100.0972200.0649600.0313300.04892028-Feb-94-0.048130-0.106670-0.094710-0.156850-0.097050-0.070920-0.024090-0.00949031-Mar-94-0.190340-0.098270-0.045050-0.083080-0.039400-0.047010-0.048550-0.045740-0.04602029-Apr-94-0.0139900.0833300.000000-0.010070-0.037110-0.007410-0.0403200.009830-0.01082031-May-940.0717700.0198200.9056600.063860-0.025560-0.007760-0.0030300.009500-0.00027030-Jun-94-0.080000-0.165640-0.166670-0.128710-0.102560-0.048120-0.053030-0.016950-0.027380-0.02657029-Jul-940.014490-0.0514700.050000-0.0113600.0464300.0659300.032000-0.0689700.0304100.01547031-Aug-940.1500000.1410900.039680-0.2758600.1154900.1554600.0151900.1851900.0428300.03679030-Sep-94-0.086210-0.123290-0.092310-0.031750-0.147690-0.109320-0.115380-0.026250-0.0186500.00450031-Oct-940.0137000.0156300.050850-0.3114800.1438300.0523100.060870-0.0322600.014870-0.00240030-Nov-94-0.060000-0.029230-0.037100-0.071430-0.034920-0.091010-0.098690-0.041670-0.037070-0.04057030-Dec-940.043480-0.016000-0.0084000.410260-0.059210-0.0021100.100920-0.0260900.012750-0.01286031-Jan-950.0208300.0813000.152540-0.1818200.0309100.0190700.0000000.0957100.0205500.02771028-Feb-950.2244900.1368400.0691200.1555600.1194500.1205800.1663300.1639300.0396200.02799031-Mar-95-0.016000-0.013330-0.0069000.7307700.0365900.004750-0.071940-0.0231000.0269700.01874028-Apr-950.0397700.1148600.0833300.5666700.0705900.0315400.0620200.0144900.0248800.02598031-May-95-0.0109300.0381800.0153800.5177300.0386800.0953200.1602900.0500000.0341600.02050030-Jun-950.0006600.0555600.1075900.4112100.1170200.077180-0.0443000.0593200.0308400.04869031-Jul-950.0888900.0350900.017140-0.0066200.0571400.0237200.0860900.1225800.0406700.05518031-Aug-95-0.005100-0.0610200.0640400.1266700.0429700.038860-0.0551200.0114900.0093400.03038029-Sep-950.0980500.042420-0.015870-0.1124300.0846000.1165500.2626300.025970-0.0072700.0363900.02599031-Oct-95-0.042250-0.075580-0.064520-0.373330-0.112000-0.0997900.4080000.120250-0.011490-0.011150-0.04058030-Nov-950.0651000.1018900.0425300.5106400.004680-0.0086200.5710200.0110700.0523300.0429700.01720029-Dec-95-0.115740-0.086210-0.060770-0.098590-0.081080-0.0652200.005420-0.101120-0.0565700.0154000.00978031-Jan-960.0523600.1572300.205880-0.1855500.1202900.1857400.1816500.0375000.0352900.0280900.03329029-Feb-96-0.0348300.060870-0.032200-0.1558800.013190-0.015750-0.379000-0.0363900.0056800.0160500.03154029-Mar-960.0323700.0206200.0808100.0909100.0542300.109330-0.1862700.1069200.0212400.0112000.02412030-Apr-96-0.0552800.015150-0.0514000.333330-0.006170-0.0302900.469880-0.0511400.0055600.0251300.05733031-May-960.0904300.014180-0.0325100.1562500.077430-0.0149300.1157800.0536500.005520-0.0588200.0267200.06105028-Jun-960.064780-0.0207300.0102000.0945900.005790-0.007580-0.0854000.085710-0.001320-0.250000-0.007660-0.03060031-Jul-960.009220-0.047620-0.065660-0.172840-0.068330-0.004070-0.365460-0.115790-0.077350-0.142860-0.053390-0.07862030-Aug-960.0228300.045560-0.0843200.0447800.014490-0.020510-0.104430-0.0121400.1197600.0902800.0322200.04477030-Sep-960.045890-0.0053500.2248500.0285700.0755100.0418800.3109500.0181800.0415000.0828000.0529900.02897031-Oct-960.0257500.016130-0.028990-0.0347200.0664100.013570-0.0458200.1190500.005150-0.0705900.013940-0.01997029-Nov-960.0460300.1703700.1611900.1654700.1466200.1965200.2627100.1542600.164100-0.0316500.0657300.02477031-Dec-960.0811200.0136400.077250-0.0246900.015580-0.0499000.0179000.0412900.065550-0.111110-0.011350-0.00142031-Jan-970.0111500.0762300.0079700.0506300.0322100.003500-0.3340700.2800000.0705400.9926500.0530400.06172028-Feb-970.0441200.0550000.0651400.3373500.1447300.105030-0.231020-0.0895800.034880-0.107010-0.000880-0.01043031-Mar-97-0.128730-0.125000-0.130110-0.135140-0.105470-0.0693100.032190-0.134100-0.050040-0.070250-0.044390-0.04788030-Apr-970.1382100.1619000.1623900.0625000.1109200.077870-0.0997900.2035400.1087000.2133300.042460-0.02139030-May-970.0607100.0704900.207650-0.2451000.1157900.0752500.0923800.0485300.176470-0.0549500.0712500.08517030-Jun-970.1563600.051920-0.012200-0.0129900.1250000.0468200.084570-0.014080-0.0016400.0930200.0442000.04424031-Jul-97-0.0117000.1992700.2314800.0657900.1813400.2209600.1442500.1482100.0570800.6028400.0763100.04862029-Aug-97-0.059170-0.031400-0.121600-0.006170-0.124050-0.0822400.085180-0.0435500.0021600.053100-0.0364500.027020Source: Center for Research on Security Prices, University of Chicago.aVW (EW) NYSE, AMEX, & Nasdaq represents the value-weighted (equal-weighted) index of all US publicly traded firms.

solutionReturnsCharles SchwabQuick & ReillyWaterhouse Investor ServicesVWIEWI31-Jan-84-0.0129100.00576029-Feb-84-0.146-0.039170-0.05381030-Mar-84-0.0080.0134500.00710030-Apr-840.1510.002730-0.01942031-May-840.015-0.052350-0.05077029-Jun-840.0390.0235900.01380031-Jul-84-0.181-0.020350-0.04745031-Aug-840.2240.1125700.08962028-Sep-84-0.0560.0003900.00027031-Oct-840.0510.000130-0.02089030-Nov-84-0.144-0.010620-0.03141031-Dec-840.0160.0237900.00505031-Jan-850.5080.0857300.12276028-Feb-850.0210.0170000.04714029-Mar-85-0.026-0.001930-0.00853030-Apr-85-0.108-0.002180-0.01129031-May-850.1000.0558700.02293028-Jun-850.0610.0171900.00347031-Jul-850.005-0.0005400.01951030-Aug-85-0.049-0.004800-0.00341030-Sep-85-0.120-0.039650-0.05614031-Oct-850.1060.0445700.01896029-Nov-850.1490.0692700.05327031-Dec-850.2750.0430600.02913031-Jan-860.1190.0098600.04340028-Feb-860.0800.0728400.06236031-Mar-86-0.0030.0538800.04772030-Apr-86-0.221-0.0080600.01584030-May-860.1010.0508100.03663030-Jun-860.0640.0143000.00896031-Jul-86-0.183-0.059690-0.07361029-Aug-86-0.0060.0663900.02211030-Sep-86-0.170-0.079140-0.06049031-Oct-860.3460.0494400.02462028-Nov-86-0.0800.015170-0.00628031-Dec-86-0.093-0.026540-0.03453030-Jan-870.3500.1283700.11682027-Feb-870.0260.0476300.07495031-Mar-87-0.0240.0232400.03309030-Apr-87-0.109-0.017130-0.01961029-May-870.0080.0052200.00071030-Jun-87-0.1050.1530.0438300.02201031-Jul-870.0520.0310.0440500.03470031-Aug-870.219-0.0910.0372300.01559030-Sep-87-0.0660.067-0.020740-0.01551030-Oct-87-0.504-0.473-0.219-0.225-0.27130-Nov-87-0.159-0.037-0.040-0.073-0.05231-Dec-87-0.0940.075-0.1250.0700.02829-Jan-880.0830.010-0.1430.0450.07829-Feb-880.3850.0840.0560.0520.06231 -Mar-88-0.181-0.0930.263-0.0170.03429-Apr-880.0340.031-0.0210.0110.01531-May-88-0.098-0.0840.0640.001-0.01730-Jun-880.0550.033-0.2000.0510.04829-Jul-880.034-0.032-0.300-0.0070.00131-Aug-88-0.100-0.017-0.071-0.028-0.02430-Sep-880.0000.0440.2310.0370.01931-Oct-880.1110.000-0.1560.018-0.01230-Nov-88-0.100-0.0160.037-0.016-0.03730-Dec-880.000-0.054-0.2140.0210.02029-Jan-890.5190.3790.3640.0660.06329-Feb-89-0.159-0.0790.000-0.0160.00332 -Mar-880.029-0.0360.2670.0220.01729-Apr-890.141-0.019-0.1050.0490.03131-May-890.1630.2450.1760.0400.02730-Jun-89-0.064-0.1320.200-0.005-0.00829-Jul-890.5030.1790.0000.0780.03231-Aug-89-0.0450.034-0.0220.0220.01930-Sep-89-0.111-0.015-0.022-0.0020.00431-Oct-89-0.069-0.060-0.044-0.029-0.05130-Nov-89-0.038-0.052-0.0700.018-0.00830-Dec-890.110-0.084-0.1000.018-0.01229-Jan-90-0.025-0.119-0.028-0.070-0.04629-Feb-900.1300.146-0.1430.0150.01633 -Mar-880.115-0.0280.1330.0240.02229-Apr-90-0.109-0.0190.029-0.028-0.02731-May-900.0410.178-0.0290.0890.04730-Jun-90-0.032-0.0820.118-0.0040.00529-Jul-90-0.105-0.036-0.026-0.009-0.02731-Aug-90-0.073-0.152-0.022-0.092-0.11030-Sep-90-0.099-0.088-0.029-0.054-0.08031-Oct-900.113-0.060-0.059-0.012-0.05630-Nov-90-0.0590.046-0.0630.0660.03730-Dec-90-0.0420.012-0.0330.030-0.00429-Jan-910.4100.2800.0340.0490.08529-Feb-910.1410.2340.2000.0760.13434 -Mar-880.1100.1710.3610.0290.07829-Apr-91-0.103-0.0730.1430.0030.03131-May-910.2410.0180.1790.0410.03030-Jun-910.100-0.0420.212-0.044-0.03529-Jul-910.1130.1540.2970.0470.03531-Aug-910.0320.0550.0520.0270.02930-Sep-910.097-0.0670.326-0.0110.00931-Oct-910.2150.058-0.0180.0180.02430-Nov-91-0.132-0.0150.107-0.037-0.02530-Dec-910.3910.3880.7740.1070.03629-Jan-920.051-0.009-0.036-0.0020.14929-Feb-920.0430.0430.2310.0130.05235 -Mar-880.0410.0040.167-0.024-0.01429-Apr-92-0.175-0.249-0.1870.014-0.03331-May-920.0130.0040.0550.0070.00630-Jun-92-0.186-0.023-0.213-0.019-0.04029-Jul-920.050-0.0420.0290.0400.02731-Aug-92-0.086-0.021-0.209-0.021-0.02430-Sep-92-0.2000.0250.0450.0120.01231-Oct-920.1280.0430.0870.0110.01630-Nov-920.2280.2120.3280.0400.06830-Dec-920.050-0.025-0.0120.0180.03629-Jan-930.1600.0910.2320.0120.06729-Feb-930.070-0.029-0.0350.005-0.00836 -Mar-880.1270.0430.0510.0250.03129-Apr-93-0.101-0.074-0.098-0.026-0.01331-May-930.0760.0440.4730.0290.03830-Jun-930.2130.1600.2290.0050.01229-Jul-930.0190.065-0.015-0.0010.01431-Aug-930.1340.1410.2990.0390.04030-Sep-930.0490.0360.1760.0010.02631-Oct-930.005-0.010-0.0570.0180.04030-Nov-93-0.079-0.043-0.183-0.017-0.02430-Dec-930.0160.096-0.1750.0190.01629-Jan-94-0.087-0.0100.0000.0310.04929-Feb-94-0.068-0.190-0.035-0.024-0.00937 -Mar-88-0.023-0.097-0.140-0.046-0.04629-Apr-940.0580.029-0.0920.010-0.01131-May-940.0660.024-0.0470.010-0.00030-Jun-94-0.182-0.056-0.123-0.027-0.02729-Jul-940.084-0.025-0.0280.0300.01531-Aug-940.1500.1870.3230.0430.03730-Sep-94-0.037-0.115-0.169-0.0190.00531-Oct-940.196-0.0050.1420.015-0.00230-Nov-94-0.099-0.034-0.116-0.037-0.04130-Dec-940.0940.146-0.1400.013-0.01329-Jan-950.1500.0880.1840.0210.02829-Feb-950.1090.1430.1980.0400.02838 -Mar-880.0900.014-0.0720.0270.01929-Apr-950.0640.1440.0000.0250.02631-May-950.0220.1570.0850.0340.02130-Jun-950.2540.1740.3140.0310.04929-Jul-950.0530.0510.2010.0410.05531-Aug-950.011-0.0270.0450.0090.03030-Sep-950.2440.2270.1140.0360.02631-Oct-95-0.210-0.223-0.225-0.011-0.04130-Nov-950.0600.0710.0000.0430.01730-Dec-95-0.170-0.1920.2530.0150.01029-Jan-960.2500.134-0.0450.0280.03329-Feb-960.0150.1320.0420.0160.03239 -Mar-880.0150.1240.3550.0110.02429-Apr-96-0.0520.0340.0860.0250.05731-May-96-0.0100.1130.0100.0270.06130-Jun-960.010-0.0410.014-0.008-0.03129-Jul-96-0.013-0.1270.013-0.053-0.07931-Aug-960.0360.034-0.0010.0320.04530-Sep-96-0.080-0.0940.0130.0530.02931-Oct-960.089-0.0090.014-0.02030-Nov-960.2100.0840.0660.02530-Dec-960.0580.053-0.011-0.00129-Jan-970.1720.2260.0530.06229-Feb-970.001-0.039-0.001-0.01040 -Mar-88-0.147-0.105-0.044-0.04829-Apr-970.1450.0600.042-0.02131-May-970.1110.0420.0710.08530-Jun-97-0.0030.0110.0440.04429-Jul-970.1600.1290.0760.04931-Aug-97-0.0890.307-0.0360.027

There are many different methods of calculating beta

Different indices and different lengths of time

This table shows betas for different indices and different lenghts

BetasLeveredCharles SchwabQuick & ReillyWaterhouse Investor Servicesfull periodVW2.342.181.40EW1.741.901.355yr 92-96VW2.302.203.18Beta obtained using 60 monthsEW1.361.432.17as suggested in the book5yrmost recentVW2.241.793.22Beta obtained using 60 monthsEW1.491.882.84as suggested in the book2yrmost recentVW2.041.130.63EW1.091.890.94

We must remember that betas obtained from stocks correspond to EQUITY betas and thus include financial risk from leverage

We use leverage and the Hamada equation to unlever the betas

Leveraged/v0.0800.0000.380from Exhibit 4d/e0.0870.0000.613

UnleveredBetasCharles SchwabQuick & ReillyWaterhouse Investor Servicesfull periodAvgAssumingVW2.212.181.001.8035% tax rateEW1.651.900.961.50

5yr 92-96VW2.172.202.272.22Beta obtained using 60 monthsEW1.291.431.551.42as suggested in the book

5yrmost recentVW2.121.792.302.07Beta obtained using 60 monthsEW1.411.882.031.77as suggested in the book

2yrmost recentVW1.931.130.451.17EW1.031.890.671.20Using the CAPM model to get the cost of capital for the projectRisk free rateReasonable approach is to use the current yield on long term government bondsIf we assume that the project will last for 10 years, we use 10 yr yield0.0634Market risk premiumFrom exhibit 3One possible approach to estimate the market risk premium:Historical average annual return of large stocks minus that of long term US government bonds over the longer period (29-96)estimate = 12.7-5.5 From exhibit 30.072Using this definition of Market premiumthe estimated cost for the project would bek = 0.0634 + 0.072* 2.20.223ork = 0.0634 + 0.072* 2.070.212Cost of capital for the project would oscilate around 22%depending on the specific value of Rf and the method to get betaAnother possible approach to estimate the market risk premiumFollow authors' idea that the market premium in the present day is between 4 and 6 percentUse 5%0.050Using this definition of Market premiumthe estimated cost for the project would bek = 0.0634 + 0.05*2.20.174ork = 0.0634 + 0.05* 2.070.167Cost of capital for the project would oscilate around 17%depending on the specific value of Rf and the method to get betaConclusionThe cost of capital for the project is high.The estimated cost of capital represents the risk of real investments in the discount brokerage industryThe discount brokerage business has very high systematic risk. All of the revenues are linked to stock market activity and performanceIf Ameritrade uses debt to finance the project, the cost of capital may fall but the equity beta (and the cost of equity) will increase with the level of leverage used.