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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?
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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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