There are few, if any, real companies with negative betas. But suppose you found one with

.25.

a. How would you expect this stock’s rate of return to change if the overall market rose by an extra 5%? What if the market fell by an extra 5%?

b. You have $1 million invested in a well-diversified portfolio of stocks. Now you receive an additional $20,000 bequest. Which of the following actions will yield the safest overall portfolio return?

i. Invest $20,000 in Treasury bills (which have 0).

ii. Invest $20,000 in stocks with 1.

iii. Invest $20,000 in the stock with .25.

Explain your answer.AppendixLO1

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Correlation Coefficients Canadian Deutsche Tata Standard BP Pacific Bank Fiat Heineken LVMH Nestl Motors Deviation BP 1 0.19 0.23 0.20 0.34 0.30 0.16 0.09 22.2% Canadian Pacific Deutsche Bank Fiat Heineken LVMH Nestl Tata Motors 1 0.43 0.31 0.39 0.34 0.17 0.40 23.9 1 0.74 0.73 0.73 0.49 0.68 29.2 1 0.66 0.64 0.47 0.53 35.7 1 0.64 0.51 0.50 18.9 1 0.52 0.60 20.8 1 0.43 15.4 1 43.0