You have the following data on (1)the average annual returns of the market for the past 5 years and (2)similar information on Stocks A and B.Which of the possible answers best describes the historical betas for A and B? $\begin{array}{l} \begin{array} { l } \text { Years } & \text { Market } \ 1&0.03 \ 2 & -0.05 \ 3 & 0.01 \ 4 & -0.10 \ 5 & 006 \end{array} \begin{array} { l } \text { Stock A } \ 0.16 \ 0.20 \ 0.18 \ 0.25 \ 014 \end{array} \begin{array} { l } \text { Stock B } \ 0.05 \ 0.05 \ 0.05 \ 0.05 \ 005 \end{array} \end{array}$ A) b_A +1; b_B = 0. B) b_A = 0; b_B = -1. C) b_A

Question

You have the following data on (1)the average annual returns of the market for the past 5 years and (2)similar information on Stocks A and B.Which of the possible answers best describes the historical betas for A and B? $\begin{array}{l} \begin{array} { l } \text { Years } & \text { Market } \ 1&0.03 \ 2 & -0.05 \ 3 & 0.01 \ 4 & -0.10 \ 5 & 006 \end{array} \begin{array} { l } \text { Stock A } \ 0.16 \ 0.20 \ 0.18 \ 0.25 \ 014 \end{array} \begin{array} { l } \text { Stock B } \ 0.05 \ 0.05 \ 0.05 \ 0.05 \ 005 \end{array} \end{array}$ A) b_A > +1; b_B = 0. B) b_A = 0; b_B = -1. C) b_A < 0; b_B = 0. D) b_A < -1; b_B = 1. E) b_A > 0; b_B = 1.

Quizplus · Accepted Answer

B's returns are independent of the market,hence its beta is zero.If you plot A's returns against those of the market,you see a negative slope,hence B's beta is negative.Therefore,d is the correct answer.

You Have the Following Data on (1)the Average Annual Returns