If a stock ALPHA has a beta of 1.15 and the market goes up by 1% then ALPHA would increase by [ Select ] ["11%", "15%", "1.15%", "1%"]
A stock has an expected return of 11% and a beta of 1.15.
If market return increases by 8% what should be the stock's return? [ Select ] ["8%", "19%", "20.2%", "12.65%"]
1) If a stock ALPHA has a beta of 1.15 and the market goes up by 1% then ALPHA would increase by "1.15%"
Explanation:
Return of stock is given by the equation:
Return stock = Risk free rate+Beta*(Market return-Risk free rate)
When the market return goes up by 1%, the second term will go up beta times 1%, which is equal to 1.15%.
2) A stock has an expected return of 11% and a beta of 1.15.
If market return increases by 8% what should be the stock's return?
= 11%+8%*1.15 = 20.20%
2. A stock has a beta of 1.15, the expected return on the market is 10.6 percent, and the risk-free rate is 4.5 percent. What must the expected return on this stock be?
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Required return on Stock = Risk-free return + (Market risk premium)(Stock's beta) to compensate the investor for risk. If a stock's expected return plots below the SM If a stock's expected return plots on or above the SML, then the stock's return is -Select- the stock's return is -Select- to compensate the investor for risk. The SML line can change due to expected inflation and risk aversion. If inflation changes, then the SML plotted on a graph will shift up...
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