Question

You have the following data on three stocks:

Stock	Expected Return	Beta
A	12%	0.6
B	14%	1.2
C	9%	1.0

In a declining stock market, which stock would have the least amount of expected loss?

	A.	Stock B
	B.	Can't be determined with the information given.
	C.	Stock C
	D.	Stock A

Answer 1

Beta shows the change in the stock Prices due to changes in Stock Market. i.e. % change in Stock due to % change in Market. A positive and high beta would mean that the stock will more in the same direction as market and higher than market. So, a low and positive beta would mena that the stock will move in the same direction as market but will not fall as high as market. So, in the above question Stock A has lowest beta i.e. it will fall least thus will give least Loss.

Option D is correct. Stock A

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