The beta of Southeast has been estimated to be 0.85. Which of the following stat

Question

The beta of Southeast has been estimated to be 0.85. Which of the following statements about Southeast is FALSE?

If the market rises by 1%, Southeast would be expected to rise by 1.85%.

If the market falls by 1%, Southeast would be expected to fall by 0.85%.

The sign of the covariance between Southeast and the market is greater than zero.

The covariance between Southeast and the market divided by the variance of the market is equal to 0.85.

Southeast is considered to be less risky compared to the market.

If the market rises by 1%, Southeast would be expected to rise by 1.85%.

If the market falls by 1%, Southeast would be expected to fall by 0.85%.

The sign of the covariance between Southeast and the market is greater than zero.

The covariance between Southeast and the market divided by the variance of the market is equal to 0.85.

Southeast is considered to be less risky compared to the market.

Explanation / Answer

option a is false. beta 0.85 means, if the market rises by 1%, the stock will rise by 0.85% only and in the similar way if the market declined by 1%, the stock also declined by 0.85% only.

so, option a is false and option d and c also false.

options b and e are true.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.