Question

Estimate a stock's beta based on the following information: Month 1 = Stock + 0.5%, Market + 1.1%; Month 2 = Stock + 1.0%, Market + 1.4%; Month 3 = Stock − 1.5%, Market − 2.0%.

Equal to 1.0 |
||

Less than 1.0 |
||

Greater than 1.0 |
||

Indeterminate |

Answer #1

Beta is a relationship between the percentage change in stock return when market return changes.

Month 1 = Stock moves by 0.5% and market moves by 1.1% , thus stock moves by a smaller percentage. Thus, Beta is less that 1.

Month 2 = Stock moves by 1% and market moves by 1.4% , thus stock moves by a smaller percentage. Thus, Beta is less that 1.

Month 3 = Stock moves by -1.5% and market moves by 2% , thus stock moves by a smaller percentage. Thus, Beta is less that 1.

**Thus the overall Beta is less than 1.**

Based on the following information, make an estimate of the
stock's beta: Month 1 = Stock +1.1%, Market +1.5%; Month 2 = Stock
+1.4%, Market +2.4%; Month 3 = Stock -2.1%, Market -2.9%. A. Beta
is greater than 1.0. B. Beta is less than 1.0. C. Beta equals 1.0.
D. There is no consistent pattern of returns.

Based on the following information, make an estimate of the
stock's beta: Month 1 = Stock +1.1%, Market +1.5%; Month 2 = Stock
+1.4%, Market +2.4%; Month 3 = Stock -2.1%, Market -2.9%.
A. Beta is greater than 1.0.
B. Beta is less than 1.0.
C. Beta equals 1.0.
D. There is no consistent pattern of returns.

BETA AND REQUIRED RATE OF RETURN
A stock has a required return of 12%; the risk-free rate is 7%;
and the market risk premium is 3%.
What is the stock's beta? Round your answer to two decimal
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If the market risk premium increased to 7%, what would happen
to the stock's required rate of return? Assume that the risk-free
rate and the beta remain unchanged.
If the stock's beta is equal to 1.0, then the change in
required rate...

Beta and required rate of return
A stock has a required return of 11%; the risk-free rate is 7%;
and the market risk premium is 3%.
What is the stock's beta? Round your answer to two decimal
places.
If the market risk premium increased to 9%, what would happen
to the stock's required rate of return? Assume that the risk-free
rate and the beta remain unchanged.
If the stock's beta is greater than 1.0, then the change in
required rate...

BETA AND REQUIRED RATE OF RETURN
a. A stock has a required return of 11%; the risk-free rate is
5%; and the market risk premium is 5%. What is the stock's beta?
Round your answer to two decimal places.
b. If the market risk premium increased to 10%, what would
happen to the stock's required rate of return? Assume that the
risk-free rate and the beta remain unchanged.
If the stock's beta is less than 1.0, then the change in...

A stock has a required
return of 12%, the risk-free rate is 3%, and the market risk
premium is 3%.
What is the stock's beta?
Round your answer to two decimal places.
If the market risk premium
increased to 10%, what would happen to the stock's required rate of
return? Assume that the risk-free rate and the beta remain
unchanged. Do not round intermediate calculations. Round your
answer to two decimal places.
If the stock's beta is
equal to 1.0,...

Problem 8-5
Beta and required rate of return
A stock has a required return of 11%; the risk-free rate is
6.5%; and the market risk premium is 4%.
What is the stock's beta? Round your answer to two decimal
places.
If the market risk premium increased to 9%, what would happen to
the stock's required rate of return? Assume that the risk-free rate
and the beta remain unchanged.
If the stock's beta is equal to 1.0, then the change in...

A stock has a required return of 14%, the risk-free rate is
7.5%, and the market risk premium is 3%.
What is the stock's beta? Round your answer to two decimal
places.
If the market risk premium increased to 6%, what would happen
to the stock's required rate of return? Assume that the risk-free
rate and the beta remain unchanged. Do not round intermediate
calculations. Round your answer to two decimal places.
If the stock's beta is less than 1.0,...

A stock has a required return of 16%, the risk-free rate is
5.5%, and the market risk premium is 3%.
What is the stock's beta? Round your answer to two decimal
places.
If the market risk premium increased to 7%, what would happen
to the stock's required rate of return? Assume that the risk-free
rate and the beta remain unchanged. Do not round intermediate
calculations. Round your answer to two decimal places.
If the stock's beta is greater than 1.0,...

A stock has a required return of 16%, the risk-free rate is 5%,
and the market risk premium is 3%.
What is the stock's beta? Round your answer to two decimal
places.
If the market risk premium increased to 10%, what would happen
to the stock's required rate of return? Assume that the risk-free
rate and the beta remain unchanged. Do not round intermediate
calculations. Round your answer to two decimal places.
If the stock's beta is greater than 1.0,...

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