T- 6.1 Problem 3: Evaluate the following cases of assets: 1-What would happen to

Question

T- 6.1

Problem 3:

Evaluate the following cases of assets:

1-What would happen to the performance of each asset if it reflects a 20% increase in performance

From the market?

2. What would happen to the performance of each asset if it reflects a 20% decrease in market performance?

3. If the market performance increased in the future, how active you prefer? Why?

4. If the market yield decrease in the future, how active you prefer? Why?

*** NOTE: No copying answers from other questions in this system are incorrect. IT IS VERY IMPORTANT TO COMPLETE THE ENTIRE EXERCISE. INCLUDE ALL CALCULATIONS. THANK

Explanation / Answer

Introduction of Beta:

Beta is a measure of a stock's volatility in relation to the market. By definition, the market has a beta of 1.0, and individual stocks are ranked according to how much they deviate from the market. A stock that swings more than the market over time has a beta above 1.0. If a stock moves less than the market, the stock's beta is less than 1.0. High-beta stocks are supposed to be riskier but provide a potential for higher returns; low-beta stocks pose less risk but also lower returns.

1. The performance of each asset if it reflects a 20% increase in market performance.

2.The performance of each asset if it reflects a 20% decline in market performance

Asset Beta Asset performance A 0.25 Asset is 75% less volatile than the market B 1.50 Assets's return will likely be 1.5 times as volatile as that of the market. C -0.25 Asset is 75% less volatile than the market in the opposite direction D 0.99 Asset is 1% less volatile than the market

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