A security has a beta of 1.20. Is this security more or less risky than the market? Explain. Assess the impact on the required return of this security in each of the following cases. a. The market return increases by 15%. b. The market return decreases by 8%. c. The market return remains unchanged.
A security has a beta of 1.20. Is this security more or less risky than the market? Explain. Assess the impact on the required return of this security in each of the following cases. a. The market return increases by 15%. b. The market return decreases by 8%. c. The market return remains unchanged.
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter3: Risk And Return: Part Ii
Section: Chapter Questions
Problem 2Q: Security A has an expected rate of return of 6%, a standard deviation of returns of 30%, a...
Related questions
Concept explainers
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Question
Transcribed Image Text:6. A security has a beta of 1.20. Is this security more or less risky than the market? Explain. Assess the impact on the required
return of this security in each of the following cases.
a. The market return increases by 15%.
b. The market return decreases by 8%.
c. The market return remains unchanged.
Review Only
5 Click the icon to see the Worked Solution.
A security has a beta of 1.20. Is this security more or less risky than the market? (Select the best choice below.)
A. The security and the market are equally risky because the market has a beta of 1.
B. The security is more risky than the market because the market has a beta of 1.
C. The security and the market are equally risky because the market has the same beta of 1.20.
D. The security is less risky than the market because the market has a beta of 1.
a. If the market return increases by 15%, the expected return of the security with a beta of 1.20 will: (Select the best choice
below.)
A. increase by more than 15%.
B. increase by less than 15%.
C. remain unchanged.
D. decrease by less than 8%.
E. decrease by more than 8%.
b. If the market return decreases by 8%, the expected return of the security with a beta of 1.20 will: (Select the best choice
below.)
A. increase by more than 15%.
B. increase by less than 15%.
C. remain unchanged.
D. decrease by less than 8%.
O E. decrease by more than 8%.
c. If the market return remains unchanged, the expected return of the security with a beta of 1.20 will: (Select the best
choice below.)
A. increase by more than 15%.
B. increase by less than 15%.
C. remain unchanged.
D. decrease by less than 8%.
E. decrease by more than 8%.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning