A stock recently has been estimated to have a beta of 1.32: a. What will a...

A stock recently has been estimated to have a beta of 1.32:

a. What will a beta book compute as the “adjusted beta” of this stock? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b. Suppose that you estimate the following regression describing the evolution of beta over time:

β_t = 0.7 + 0.3β_t_–1

What would be your predicted beta for next year? (Do not round intermediate calculations. Round your answer to 3 decimal places.)

Expert Solution

a.) Adjusted beta = Estimated beta * 2/3 + 1/3

Adjusted beta = 1.32 * 2/3 + 1/3

Adjusted beta = 0.88 + 0.3333333333

Adjusted beta = 1.2133333333

b.) β_t = 0.7 + 0.3β_t_–1

β_t_–1 = 1.32

β_t = 0.7 + 0.3 * 1.32

β_t = 0.7 + 0.396

β_t = 1.096

jeff jeffy answered 2 years ago

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