Utilizing the security market line an investor owning a stock with a beta of -2 would expect the stock's return to ____ in a market that was expected to decline 15%.
A) Rise or fall an indeterminate amount
B) Fall by 3%
C) Fall by 30%
D) Rise by 13%
E) Rise by 30%

Question

Quizplus · Accepted Answer

A stock with a beta of -2 is expected to move in the opposite direction of the market. If the market declines by 15%, a stock with a beta of -2 would be expected to rise by 30% (2 times the market movement in the opposite direction).

Utilizing the Security Market Line an Investor Owning a Stock