Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

(Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Security Beta

image text in transcribedimage text in transcribed

(Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Security Beta 1.42 B 0.82 -0.93 UU Assume the betas for securities A, B, and C are as shown here: a. Calculate the change in return for each security if the market experiences an increase in its rate of return of 13.4% over the next period. b. Calculate the change in return for each security if the market experiences a decrease in its rate of return of 9.1% over the next period. c. Rank and discuss the relative risk of each security on the basis of your findings. Which security might perform best during an economic downturn? Explain. a. Calculate the change in return for each security if the market experiences an increase in its rate of return of 13.4% over the next period. Security A's change in return will be %. (Round to two decimal places.) Security B's change in return will be %. (Round to two decimal places.) Security C's change in return will be %. (Round to two decimal places.) b. Calculate the change in return for each security if the market experiences a decrease in its rate of return of 9.1% over the next period. Security A's change in return will be %. (Round to two decimal places.) Security B's change in return will be %. (Round to two decimal places.) Security C's change in return will be ]%. (Round to two decimal places.) c. Rank and discuss the relative risk of each security on the basis of your findings. Which security might perform best during an economic downturn? Explain. (Selec the best choice below.) O A. Security A is the most risky. It has the highest relevant risk, as determined by the beta values and the greater changes in security A's return for a given change in the market return. O B. Security B is the least risky since its return is least responsive (regardless of direction) to changes in the market return. OC. Security C could be called defensive since it moves in the opposite direction from the market (its return increased when the market return fell and vice versa). O D. During an economic downturn, it can probably be assumed that the market return would decrease. If this occurred, security C would perform best. Otherwise, security B would be best since it would be least responsive to a change in the market return. O E. All the above statements are correct

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Risk Management And Insurance

Authors: James TrieschmannSandra GustavsonSandra Gustavson, Robert HoytSandra Gustavson, Robert Hoyt, David Sommer

12th Edition

0324183208, 9780324183207

More Books

Students also viewed these Finance questions

Question

What is the difference between a class scope and local scope?

Answered: 1 week ago

Question

1.4 Identify tools to help makeevidence-based HRM decisions.

Answered: 1 week ago