Consider a stock with a current price of $15 that will be worth either $10 or $25 1 year from now. Assume rf = 0% (annual compounding). You have invented a new derivative security called an "inverse", whose payoff in 1 year is 100 divided by the stock price, i.e., payoff =100/S1.

If the beta of the stock is 1.2, what is the beta of this new derivative?

Answer rating: 100% (QA)

SOLUTION To calculate the beta of the new derivative security we need to use the formula for beta Be... View the full answer