Suppose the following equation best describes the evolution of β over time:
Β_t= 0.4 + 0.6β_t-1
If a stock had a β of 0.9 last year,you would forecast the β to be _______ in the coming year.

Question

Quizplus · Accepted Answer

By plugging in the given information, we can solve for βtS1U1B0:
0.9 *1*1=0.4+0.6βtS1U1B0
0.5=0.6βtS1U1B0
βtS1U1B0=0.5/0.6
βtS1U1B0=0.83
Thus, we can forecast the β to be 0.94 (0.4 + 0.6*0.83) in the coming year. Therefore, the correct answer is D.

Suppose the Following Equation Best Describes the Evolution of β