If a security has a GNP beta of 1.5,then the security's total rate of return will:
A)increase by 1.5 percent for every 1 percent decrease in GNP.
B)increase by 1.5 percent every time the GNP increases by 1.5 percent.
C)change by an amount equal to 1.5 times the percentage amount of any unexpected change in GNP.
D)change by an amount equal to the unexpected percentage change in GNP divided by a factor of 1.5.
E)increase by 1.5 percent whenever the GNP increases by 1.5 percent.

Question

Quizplus · Accepted Answer

A security's GNP beta of 1.5 indicates that for every 1 percent unexpected change in GNP, the security's total rate of return will change by an amount equal to 1.5 times the percentage amount of the unexpected change in GNP. Therefore, option C is correct. Option A and B are incorrect as they suggest a direct relationship between GNP and the security's return, which is not the case. Option D and E are incorrect as they do not incorporate the concept of unexpected changes in GNP, which is essential for calculating the security's GNP beta.

If a Security Has a GNP Beta of 1