Question

In: Finance

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 2 years ago
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