Question

If a stock ALPHA has a beta of 1.15 and the market goes up by 1% then ALPHA would increase by [ Select ] ["11%", "15%", "1.15%", "1%"]

A stock has an expected return of 11% and a beta of 1.15.

If market return increases by 8% what should be the stock's return? [ Select ] ["8%", "19%", "20.2%", "12.65%"]

Answer 1

1) If a stock ALPHA has a beta of 1.15 and the market goes up by 1% then ALPHA would increase by    "1.15%"

Explanation:

Return of stock is given by the equation:

Return stock = Risk free rate+Beta*(Market return-Risk free rate)

When the market return goes up by 1%, the second term will go up beta times 1%, which is equal to 1.15%.

2) A stock has an expected return of 11% and a beta of 1.15.

If market return increases by 8% what should be the stock's return?

= 11%+8%*1.15 = 20.20%