Question: Question 5 [9 + 3 = 12 marks] You have developed the following probability distribution for stock A and the market portfolio. State 1 2

Question 5 [9 + 3 = 12 marks] You have developed

Question 5 [9 + 3 = 12 marks] You have developed the following probability distribution for stock A and the market portfolio. State 1 2 Probability 0.3 0.4 0.3 Stock A 10% 15% 30% Market Portfolio 15% 20% 25% 3 a) Compute stock A's beta. b) If the market portfolio's return suddenly falls by 2 percent what, if anything, will happen to stock A's expected return? Explain (no calculations required). Question 5 [9 + 3 = 12 marks] You have developed the following probability distribution for stock A and the market portfolio. State 1 2 Probability 0.3 0.4 0.3 Stock A 10% 15% 30% Market Portfolio 15% 20% 25% 3 a) Compute stock A's beta. b) If the market portfolio's return suddenly falls by 2 percent what, if anything, will happen to stock A's expected return? Explain (no calculations required)

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