Question

Interpreting beta???A firm wishes to assess the impact of changes in the market return on an asset that has a beta of 0.80.8. a.??If the market return increased by 1515?%, what impact would this change be expected to have on the? asset's return? b. If the market return decreased by 66?%, what impact would this change be expected to have on the? asset's return? c.??If the market return did not? change, what? impact, if? any, would be expected on the? asset's return? d.??Would this asset be considered more or less risky than the? market? a.??If the market return increased by 1515?%, the impact on the? asset's return is nothing?%. ?(Round to one decimal place. Enter a negative percentage number if the asset return? decreases.) b.??If the market return decreased by 66?%, the impact on the? asset's return is nothing?%. ?(Round to one decimal place. Enter a negative percentage number if the asset return? decreases.) c.??If the market return did not? change, the impact on the? asset's return is nothing?%. ?(Round to one decimal place. Enter a negative percentage number if the asset return? decreases.) d.??Would this asset be considered more or less risky than the? market????(Select from the? drop-down menus.) The asset is ? less risky than more risky than equally risky as the market? portfolio, which has a beta of ? .

Answer 1

Change in asset's return = beta*change in market's return

a) if the market return increase by 15%, the assets' return will increase by 0.8*15% = 12%

So, the assets's return will increase by 12%

b)  If the market return decreased by 6%, the asset's return will decrease by 0.8*6% = 4.8%

So,  the assets's return will decrease by 4.8%

c) There will be no impact on the return of the asset if the market return did not change.

d) The sset is less risky than the market because the beta is less than 1.

Market portfolio has a beta of 1.