Use the following information to answer the question(s)below.
Suppose that the market portfolio is equally likely to increase by 24% or decrease by 8%.Security "X" goes up on average by 29% when the market goes up and goes down by 11% when the market goes down.Security "Y" goes down on average by 16% when the market goes up and goes up by 16% when the market goes down.Security "Z" goes up on average by 4% when the market goes up and goes up by 4% when the market goes down.
-The expected return on a security with a beta of 0.8 is closest to:
A)0.0%.
B)3.2%.
C)6.4%.
D)7.2%.

Question

Quizplus · Accepted Answer

The expected return on a security with a beta of 0.8 is closest to 7.2%. This is because the expected return on a security is equal to the risk-free rate plus the beta of the security times the expected return on the market. The risk-free rate is assumed to be 0%, and the expected return on the market is 8%. Therefore, the expected return on a security with a beta of 0.8 is 0% + 0.8 * 8% = 7.2%.

Use the Following Information to Answer the Question(s)below