Question

Suppose that the market portfolio is equally likely to increase by 24% or decrease by 8%. Security "X" goes up on average by 29% when the market goes up and goes down by 11% when the market goes down. Security "Y" goes down on average by 16% when the market goes up and goes up by 16% when the market goes down. Security "Z" goes up on average by 4% when the market goes up and goes up by 4% when the market goes down.

The expected return on security "Y" is closest to:

		10%
		4%
		0%
		15%

Answer 1

Expected return on Y = 0.5 * 16% - 0.5*16% = 0%

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