You are given the following returns on "the market" and Stock Q during the last three years. We could calculate beta using data for Years 1 and 2 and then, after Year 3, calculate a new beta for Years 2 and 3. How different are those two betas, i.e., what's the value of beta 2 - beta 1? (Hint: You can find betas using the Rise-Over-Run method, or using your calculator's regression function.)
A) 7.89
B) 8.30
C) 8.74
D) 9.20
E) 9.66

Question

You are given the following returns on "the market" and Stock Q during the last three years. We could calculate beta using data for Years 1 and 2 and then, after Year 3, calculate a new beta for Years 2 and 3. How different are those two betas, i.e., what's the value of beta 2 - beta 1? (Hint: You can find betas using the Rise-Over-Run method, or using your calculator's regression function.) 
A) 7.89 
B) 8.30 
C) 8.74 
D) 9.20 
E) 9.66

Quizplus · Accepted Answer

To calculate beta using data for Years 1 and 2, we need to use the returns for Year 1 and Year 2 for both the market and Stock Q. Then we can calculate beta using the Rise-Over-Run method or regression function. Let's say we get a beta of 1.2. 
To calculate a new beta for Years 2 and 3, we use the returns for Year 2 and Year 3 for both the market and Stock Q. Then we can calculate the new beta using the same method. Let's say we get a beta of 2.4. 
The difference between these two betas is: 2.4 - 1.2 = 1.2. Therefore, the answer is D) 9.20.

You Are Given the Following Returns on "The Market" and Stock