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Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977
Textbook Problem

A stock had a 12% return last year, a year when the overall stock market decline. Does this mean that the stock has a negative beta and thus very little risk if held in a portfolio? Explain.

Summary Introduction

To explain: Whether the negative stock beta resulted in a little risk in the portfolio.

Portfolio Beta:

The portfolio beta is a measure of the volatility of the portfolio. It measures how the stock moves in the market. A high portfolio beta shows that securities are more volatile in the price movements while a low beta represents that securities are less volatile in the price movements.

Expected Return on Stock:

The expected return on stock refers to the weighted average of the expected return on those assets which are held in the portfolio.

Explanation
  • If the beta is positive, a stock in a given year has to counter the overall market.
  • The positive beta means that the assets are volatile and it moves with the market, it can go both up and down...

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