Question

use the following data to answer the question that follow.

Company. Beta

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Savoy Corp. 0.63

Hokie Industries. 1.58

Graham Records. 1.83

Expo Enterprises. 0.44

S&P 500. 1.00

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A. If the S&P 500 goes up by 22.59 percent, how much should the stocks of Savoy, Hokie, Graham, and Expo change in Value?

B. If the stock market drops by 21.03 percent, which one of these stocks should outperform the others? Why?

a. if the S&P 500 goes up by 22.59 percent, the stock of savoy would change in value by ____% (round to two decimal places.)

Answer 1

A. The calculation of changes in value of Savoy, Hokie, Graham and Expo is as follows:

If the S&P 500 goes up by 22.59%, then,

Savoy Corp would increase by 0.63 x 22.59 = 14.23%

Hokie would go up by 1.58 x 22.59 = 35.69%

Graham Records would go up by 1.83 x 22.59 = 41.34%

Expo Enterprises would go up by 0.44 x 22.59 = 9.94%

B. If the stock market drops by 21.03%, then the results would be as follows:

Savoy Corp would decrease by 0.63 x 21.03 = 13.25%

Hokie would decrease by 1.58 x 21.03 = 33.23%

Graham Records would decrease by 1.83 x 21.03= 38.48%

Expo Enterprises would decrease by 0.44 x 21.03 = 9.25%

So it can be clearly seen that if stock market goes down Expo Enterprises would outperform other stocks since its stock would only decrease by 9.25% as compared to other stocks.

If the S&P 500 goes up by 22.59 percent, the stock of Savoy Corp would increase by 0.63 x 22.59 = 14.23%