Suppose the following equation best describes the evolution of β over time:β_t= 0.30 + 0.70β_t-1 If a stock had a β of 0.82 last year,you would forecast the β to be _______ in the coming year. A)0.91 B)0.77 C)0.63 D)0.87 E)none of the above

Question

Quizplus · Accepted Answer

Using the given equation, we plug in the β value from last year (βS1U1B0-1 = 0.82) and solve for the forecasted β for the coming year:

βS1U1B1tS1U1B0 = 0.30 + 0.70(0.82) = 0.856

Therefore, the forecasted β for the coming year is 0.856, rounded to 0.87 in choice (D).

Suppose the Following Equation Best Describes the Evolution of β