Suppose the following equation best describes the evolution of $\beta$ over time: $\beta$ _t = 0.4 + 0.6 $\beta$ _t_{- 1}.
If a stock had a $\beta$ of 0.9 last year, you would forecast the $\beta$ to be _______ in the coming year.

Question

Suppose the following equation best describes the evolution of

\beta

over time:

\beta

_t = 0.4 + 0.6

\beta

_t_{- 1}.
If a stock had a

\beta

of 0.9 last year, you would forecast the

\beta

to be _______ in the coming year.

Quizplus · Accepted Answer

Using the given equation, we can plug in last year's F1F1F1S1F1F1F10 value (0.9) and solve for next year's value:
F1F1F1S1F1F1F10S1U1B1tS1U1B0 = 0.4 + 0.6*(0.9)*S1U1B1*(S1U1B0)*(S1U1B1-1)*(S1U1B0)
F1F1F1S1F1F1F10S1U1B1tS1U1B0 = 0.4 + 0.486*S1U1B1*(S1U1B0)^2*(S1U1B1-1)

Since we don't have information about the values of S1U1B1 and S1U1B0, we cannot solve for the exact value of F1F1F1S1F1F1F10. However, we can see that the coefficient of last year's F1F1F1S1F1F1F10 value (0.9) is 0.486, which is greater than 0.5. This means that the forecasted F1F1F1S1F1F1F10 value will be higher than last year's value of 0.9. The only answer choice that reflects this is D) 0.94.

Suppose the Following Equation Best Describes the Evolution Of β\betaβ Over Time

Suppose the Following Equation Best Describes the Evolution Of $\beta$ Over Time