There are few, if any, real companies with negative betas.
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There are few, if any, real companies with negative betas. But suppose you found one with B=-,25.
A. How would you expect this stock's rate of return to change if the overall market rose by an extra 5%? What if the market fell by an extra 5%?
B. You have $1 million invested in a well-diversified portfolio of stocks. Now you receive an additional $20000 bequest. Which of the following actions will yield the safest overall portfolio return?
1. Invest $20000 in Treasury bills(shich have a B=0).
2. Invest $20000 in stocks with B=1.
3. Invest $20000 in the stock with B=-.25
Explain your answer.
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Solution Summary
There are few, if any, real companies with negative betas. But suppose you found one with B=-,25. The solution discusses how would you expect this stock's rate of return to change if the overall market rose by an extra 5%.
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There are few, if any, real companies with negative betas. But suppose you found one with B=-,25.
A. How would you expect this stock's rate of return to change if the overall market rose by an extra 5%? What if the market fell by an extra 5%?
If the overall market rose by an extra five percent, the beta would change to -1.25 because the stock ...
Purchase this Solution
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