You are considering investing in Stock ABC.This stock has an expected return of 14%,the risk free rate is 5%,and the market risk premium (or Treynor Index)is 8%.What is the beta of Stock ABC?
A) 0.950
B) 1.125
C) 1.250
D) 1.400
E) 1.500

Question

Quizplus · Accepted Answer

Treynor Index = 11ea7fdb_fc0c_bce6_a768_4bdd86d9b2e1_TB2902_11 In equilibrium, all assets have the same Treynor index as the market, which is the market risk premium or 8%. 0.08 = 11ea7fdb_fc0c_bce7_a768_1bc969137eb0_TB2902_11 0.08 β_ABC = 0.09 β_ABC = 11ea7fdb_fc0c_bce8_a768_0f9b5fd0a595_TB2902_11 β_ABC = 1.125

You Are Considering Investing in Stock ABC