Consider the following information: Stock Return if Market Return Is: Stock –11% 11% A 0 13...

Consider the following information:

Stock Return if Market Return Is:
Stock	–11%	11%
A	0	13
B	–13	12
C	–33	20
D	10	14
E	21	-8

What is the beta of each of the stocks? (Leave no cells blank - be certain to enter "0" wherever required. Use decimals, not percents, in your calculations. A negative value should be indicated by a minus sign. Round your answers to 1 decimal place.)

Solutions

Expert Solution

Answer -

As per CAPM method

Stock return = Risk free rate + Beta x ( Market return - Risk free rate )

Stock return - Risk free rate = Beta x ( Market return - Risk free rate )

Beta = ( Stock return - Risk free rate ) / ( Market return - Risk free rate )

Adding Risk free rate to both numerator and denominator we get

Beta = Stock return / Market return [ Risk free rate cancels out ]

Stock A

Beta = 0 / 13 = 0

Stock B

Beta = - 13 / 12 = - 1.1

Stock C

Beta = - 33 / 20 = - 1.6

Stock D

Beta = 10 / 14 = 0.71

Stock E

Beta = 21 / -8 = - 2.6

jeff jeffy answered 1 year ago

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