Stock A has a beta of 0.80, stock B has a beta of 1.40, and stock C has a beta o
ID: 2792077 • Letter: S
Question
Stock A has a beta of 0.80, stock B has a beta of 1.40, and stock C has a beta of -0.30. Rank these stock from the riskiest to the least risky. Explain your reasoning and back up your explanation with research. If the return on the market portfolio increases by 12%, what change in the return for each of the stocks would you expect? Explain your answer. If the return on the market portfolio declines by 5%, what change in the return for each of the stocks would you expect? Explain your answer. If you felt the stock market was about to experience a significant decline, which stock would you be most likely to add to your portfolio? Why? If you anticipated a major stock market rally, which stock would you be most likely to add to your portfolio? Why?
Explanation / Answer
Solution:
Ranking these Stocks from the Riskiest to the Least Risky:
Stock B has the Highest Beta so, it is the Most Risky Stock. When the Stocks have the Highest Beta then it has the Highest Risk Factors.
Calculation of the Change in the Return for Each of the Stocks Would you Expect, when Market Portfolio Increases by 12% and When Market Portfolio Declines by 5%:
When the Stocks Market Portfolio Increases the Return on Stock also increasing, When it Starts Declining the Stocks Market Portfolio then the Return on the Stock is also Decreasing.
If the Stock Market Portfolio is Experience to Declining, then I would add Stock C to my portfolio because return on C will increase.
In rising markets, I would add Stock B to my portfolio because the return on Stock B will increase as market price increases.
Stock Beta Rank A 0.80 Risky (2) B 1.40 Most Risky (1) C -0.30 Least risky (3)Related Questions
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