You have the following data on (1) the average annual returns of the market for the past 5 years and (2) similar information on Stocks A and B. Which of the possible answers best describes the historical betas for A and B? Years Market Stock A Stock B 1 0.03 0.16 0.05 2 - 0.05 0.20 0.05 3 0.01 0.18 0.05 4 - 0.10 0.25 0.05 5 0.06 0.14 0.05

a. bA > 0; bB = 1.

b. bA > + 1; bB = 0.

c. bA = 0; bB = - 1.

d. bA < 0; bB = 0.

e. bA < - 1; bB = 1.

Question

Marco Dodson

Business

4 November, 08:48

You have the following data on (1) the average annual returns of the market for the past 5 years and (2) similar information on Stocks A and B. Which of the possible answers best describes the historical betas for A and B? Years Market Stock A Stock B 1 0.03 0.16 0.05 2 - 0.05 0.20 0.05 3 0.01 0.18 0.05 4 - 0.10 0.25 0.05 5 0.06 0.14 0.05

a. bA > 0; bB = 1.

b. bA > + 1; bB = 0.

c. bA = 0; bB = - 1.

d. bA < 0; bB = 0.

e. bA < - 1; bB = 1.

+1

Answers (1)

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Mcbride · Answer 1

d. bA < 0; bB = 0.

Explanation:

The possible answers that best describes the historical betas for A and B is bA < 0; bB = 0 because an average annual return for stock B is stable and constant, its beta would be zero. An average annual return for stock A is higher once market's average annual return is lower or lesser in which therefore indicates that its beta is negative.