Consider the single-index model.The alpha of a stock is 0%.The return on the market index is 10%.The risk-free rate of return is 5%.The stock earns a return that exceeds the risk-free rate by 5%, 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 single-index model can be expressed as: 
Ri = αi + βi(RM - Rf) + ei
where Ri is the return on the stock, αi is the stock's alpha (which is given as 0% in this case), βi is the stock's beta, RM is the return on the market index (which is given as 10% in this case), Rf is the risk-free rate of return (which is given as 5% in this case), and ei is the residual or firm-specific return.

We know that the stock earns a return that exceeds the risk-free rate by 5%, so: 
Ri - Rf = 5%
Substituting this into the single-index model, we get: 
0% + βi(10% - 5%) + ei = 5%
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