Question

4. You manage a stock portfolio (made up of individual stocks) and you forecast the S&P 500 Index to increase over the next year In regards to the Beta on your stock portfolio, would you (circle the best answer, 1 Point); a. No Change. b. Lower the Beta. c. Increase the Beta 5. A Use the Dividend Growth Valuation Model to calculate the Inherent value of one share Pepsi. assuming that dividends grow at a constant rate of 6.00%, next year's dividend will be $1.50, and you target a rate of return of 8.50% ( 1 point)

Answer 1

(4) Beta measures the non-diversifiable risk of a stock's return relative to the market portfolio's (benchmark or index portfolio) return. In other words the beta measures the % change in stock return for a unit change in market portfolio return. In this context if the S&P 500 (index portfolio) is expected to increase in value, then one would benefit by increasing the stock portfolio's beta as that would ensure a greater % return for every unit % increase in index portfolio.

Hence, the correct option is (c)

NOTE: Please raise a separate query for the solution to the second unrelated question as one query is restricted to the solution of only one complete question with up to four sub-parts.