Question
The text points out that value stocks (high book value to market value) tend to have higher returns than growth stocks (low book value to
The text points out that value stocks (high book value to market value) tend to have higher returns than growth stocks (low book value to market value). What is the relationship of these stocks to beta? Below are the 5 largest holdings of two T Rowe Price mutual funds, along with the beta of each stock, as well as the overall beta and 10 year return for each mutual fund.
BETA VALUES, TRP VALUE FUND (Beta 0.96, 10 yr 10.77%)
- JPM Chase (JPM): 1.14
- Medtronic (MDT): 0.62
- Merck (MRK): 0.98
- Microsoft (MSFT): 1.31
- NextEra Energy: -0.04
BETA VALUES, TRP GROWTH STOCK FUND (Beta 1.08, 10 yr 14.74%)
- Alphabet (GOOG) 1.44
- Amazon (AMZN) 1.81
- Boeing (BA) 1.69
- Booking Holdings (BKNG) 0.99
- Facebook (FB) 0.70
Why do you think that the growth fund outperformed the value fund? Is the mix of stock and beta values what you expected? Is it better to invest in growth stocks or value stocks in a bull market? What about a bear market? What is the significance of the negative beta?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started