You have developed data which give (1) the average annual returns on the market

Question

You have developed data which give (1) the average annual returns on the market for the past five years, and (2) similar information on Stocks A and B. If these data are as follows, which of the possible answers best describes the historical betas for A and B?

Years

Market

Stock A

Stock B

1

0.03

0.16

0.05

2

-0.05

0.20

0.05

3

0.01

0.18

0.05

4

-0.10

0.25

0.05

5

0.06

0.14

0.05

bA >   0; bB =   1

bA > +1; bB =   0

bA =   0; bB = -1

bA <   0; bB =   0

bA < -1; bB =   1

Years

Market

Stock A

Stock B

1

0.03

0.16

0.05

2

-0.05

0.20

0.05

3

0.01

0.18

0.05

4

-0.10

0.25

0.05

5

0.06

0.14

0.05

Explanation / Answer

the correct choice is d

since bB = 0 , as stock B is constant

and Stock A is inversely proportional to market rrate

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