Question 1

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

Accepted Answer

0.30 + 0.70(0.82) = 0.874.

Question 2

Suppose you held a well-diversified portfolio with a very large number of securities, and that the single index model holds. If the σ of your portfolio was 0.14 and σ_M was 0.19, the β of the portfolio would be approximately A) 0.74. B) 0.80. C) 1.25. D) 1.56.

Accepted Answer

s²p/s²m = b²; (0.14)²/(0.19)² = 0.54; b = 0.74.

Question 3

Suppose you held a well-diversified portfolio with a very large number of securities, and that the single index model holds. If the σ of your portfolio was 0.24 and σ_M was 0.18, the β of the portfolio would be approximately A) 0.64. B) 1.33. C) 1.25. D) 1.56.

Accepted Answer

s²p/s²m = b²; (0.24)²/(0.18)² = 1.78; b = 1.33.

Quiz 8: Index Models

Suppose the following equation best describes the evolution of β over time: βt = 0.30 + 0.70βt - 1 If a stock had a β of 0.82 last year, you would forecast the β to be _______ in the coming year.

Suppose you held a well-diversified portfolio with a very large number of securities, and that the single index model holds. If the σ of your portfolio was 0.14 and σM was 0.19, the β of the portfolio would be approximately

Suppose you held a well-diversified portfolio with a very large number of securities, and that the single index model holds. If the σ of your portfolio was 0.24 and σM was 0.18, the β of the portfolio would be approximately

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.

Suppose you held a well-diversified portfolio with a very large number of securities, and that the single index model holds. If the σ of your portfolio was 0.14 and σ_M was 0.19, the β of the portfolio would be approximately

Suppose you held a well-diversified portfolio with a very large number of securities, and that the single index model holds. If the σ of your portfolio was 0.24 and σ_M was 0.18, the β of the portfolio would be approximately