Question

if the Utilizing the security market line, an investor owning a stock with a beta of -1.25 would expect the stock's return to market's retum is expected to decline 15 percent. rise by 18.75% fall by 18.75% rise by 15% fall by 13% None of the above

Answer 1

The beta of -1.25 means, for every 1% change in the market's return, the stock return changes by 1.25% in the opposite side.

If the market's return is expected to decline by 15%, then the stock is expected to rise by 1.25*15% = 18.75%

Option a is correct.

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