Question

Stock ABC has a beta of -1.5. You invest in 1,000 shares of stock ABC at...

  1. Stock ABC has a beta of -1.5. You invest in 1,000 shares of stock ABC at a purchase price of $44 per share. The market decreases by 20%. What direction would the market move in response to the market decline? How much with the new per share price be? How much would the total investment be?

Homework Answers

Answer #1

The Beta represents the Relation of a stock in respect to the Market. i.e. response of stock in relation of Market.

Beta of - 1.5

market decreased by 20%

So stock will move in opposite direction by 20% * 1.5 = 35%. So stock will increase by 35%

Value of the Stock will be $ 44 + 35%(44) = $ 59.4

Total Investment Value will be 59.4 * 1000 = $ 59,400

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