Consider the single-index model.The alpha of a stock is 0%.The return on the market index is 16%.The risk-free rate of return is 5%.The stock earns a return that exceeds the risk-free rate by 11%, and there are no firm-specific events affecting the stock performance.The $\beta$of the stock is
A)0.67.
B)0.75.
C)1.0.
D)1.33.

Question

Quizplus · Accepted Answer

The formula for single-index model is: 
Ri = αi + βiRm + εi

Given, αi = 0%, Rm = 16%, Rf = 5% and Ri - Rf = 11%
So,

Ri = 0% + βi × 16% + (εi + 5%)

Ri - Rf = βi × (Rm - Rf) + εi

11% = βi × 11% + εi

βi = 1

Therefore, the F1F1F1S1F1F1F10 of the stock is 1.

Consider the Single-Index Model β\betaβ Of the Stock Is A)0

Consider the Single-Index Model $\beta$ Of the Stock Is
A)0