Asked by Carmen LeMaster on May 26, 2024
Verified
Suppose the following equation best describes the evolution of β over time:βt = 0.36 + 0.85βt − 1.If a stock had a β of 0.6 last year, you would forecast the β to be _______ in the coming year.
A) 0.45
B) 0.60
C) 0.87
D) 0.75
Forecast
A prediction or estimate of future events, especially concerning weather, economic trends, or financial performances.
Evolution
The gradual development or change of something over time, often used in the context of biological organisms but also applicable to concepts and systems.
Last Year
The term referring to the year immediately preceding the current one.
- Digest the concept of beta in financial circles and its importance in measuring how stock performance varies in comparison to the general market.
- Gain insight into the use of regression analysis for the purpose of determining the beta of stocks.
Verified Answer
MA
Melissa AliottaMay 31, 2024
Final Answer :
C
Explanation :
The equation provided suggests that the evolution of β over time is dependent on its previous value. Given a β of 0.6 last year, we substitute this value into the equation: 0.36 + 0.85(0.6) = 0.36 + 0.51 = 0.87. Therefore, the forecasted β for the coming year is 0.87.
Learning Objectives
- Digest the concept of beta in financial circles and its importance in measuring how stock performance varies in comparison to the general market.
- Gain insight into the use of regression analysis for the purpose of determining the beta of stocks.
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