Question

A securities dealer has equity holdings as follows:

a. What is the beta of the dealer’s equity holdings?

b. What is the market risk of the dealer’s equity holdings if the market return has been -4.95% or lower 5 times in the last 2500 trading days?

c. Specify the level of adversity indicated by this DEAR and the method used.

Company	Position	Number of shares	Price per share	Equity beta
Tenet Healthcare	long	1000	28.52	1.80
Meritor	long	1500	21.61	2.25
Simpson Manufacturing	long	300	83.27	1.32
Qorvo Inc	short	500	101.86	1.32

Answer 1

a) The beta of Dealer's Equity holding is: 2.5785

Company	Position	Number of Shares	Price per Share	Equity Beta	Shares x Price	Weights	Beta x Weights
Tenet Healthcare	Long	1000	28.52	1.8	28520.00	0.82	1.476
Meritor	Long	1500	21.61	2.25	32415.00	0.93	2.0925
Simpson Manufacturing	Long	300	83.27	1.32	24981.00	0.71	0.9372
Qorvo Inc	Short	-500	101.86	1.32	-50930.00	-1.46	-1.9272
					34986.00		2.5785

b) 2.5785*4.95%=12.76%

c) CAPM Method is used