Question
P828 Betas and risk rankings You are considering three stocksA, B, and Cfor possible inclusion in your investment portfolio. Stock A has a beta of
P828 Betas and risk rankingsYou are considering three stocksA, B, and Cfor possible inclusion in your investment portfolio. Stock A has a beta of 0.80, stock B has a beta of 1.40, and stock C has a beta of -0.30.
Rank these stocks from the most risky to the least risky.
Stock B 1.40
Stock A 0.80
Stock C -0.30
If the return on the market portfolio increased by 12%, what change would you expect in the return for each stock?
Stock A: 0.80 x .12= 0.096 x 100 =9.6
Stock B: 1.40 x .12= 0.168 x100 = 16.8
Stock c: -0.30 x .12= -0.036 x 100 = -3.6
If the return on the market portfolio decreased by 5%, what change would you expect in the return for each stock?
Stock A: 0.80 x -0.05= -.04 x 100 = -4
Stock B: 1.40 x -0.05= -.07 x 100= -7
Stock C: -0.30 x -0.05= .0015 x 100 = .15
If you believed that the stock market was getting ready to experience a significant decline, which stock would you probably add to your portfolio? Why?
If you anticipated a major stock market rally, which stock would you add to your portfolio? Why?
please evaluate if I am calculating correctly, what would be reasons for the extended response questions as well? I'd like to format my own responses for integrity however I am struggling with understanding.
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