Suppose the following equation best describes the evolution of β over time:
Βt= 0.25 + 0.75βt-1
If a stock had a β of 0.6 last year,you would forecast the β to be _______ in the coming year.
A) 0.45
B) 0.60
C) 0.70
D) 0.75
E) none of these

Question

Quizplus · Accepted Answer

Using the given equation, we can solve for the β of the coming year:
Βt = 0.25 + 0.75Βt-1
Βt = 0.25 + 0.75(0.6)
Βt = 0.25 + 0.45
Βt = 0.70

Therefore, the forecasted β for the coming year is 0.70. Choice C is the correct answer.

Suppose the Following Equation Best Describes the Evolution of β