There are few, if any, real companies with negative betas. But suppose you found one with β = −0.13. a-1. How would you expect this stock's rate of return to change if the overall market rose by an extra 5%? Note: A negative answer should be indicated by a minus sign. Input your answer as a percent rounded to 2 decimal places. a-2. How would the stock's rate of return change if the overall market fell by an extra −5%? Note: A negative answer should be indicated by a minus sign. Input your answer as a percent rounded to 2 decimal places. b. You have $1.1 million invested in a well-diversified portfolio of stocks. Now you receive an additional $32,000 bequest. Which of the following actions will yield the safest overall portfo
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
There are few, if any, real companies with negative betas. But suppose you found one with β = −0.13.
a-1. How would you expect this stock's
Note: A negative answer should be indicated by a minus sign. Input your answer as a percent rounded to 2 decimal places.
a-2. How would the stock's rate of return change if the overall market fell by an extra −5%?
Note: A negative answer should be indicated by a minus sign. Input your answer as a percent rounded to 2 decimal places.
b. You have $1.1 million invested in a well-diversified portfolio of stocks. Now you receive an additional $32,000 bequest. Which of the following actions will yield the safest overall portfolio return?
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