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Interpreting beta

A firm wishes to assess the impact of changes in the market return on an assess that has a beta of 1.20
a. If the market return increased by 15%, what impact would this change be expected to have on the asset's return?
b. If the market return decreased by 8%, what impact would this change be expected to have on the asset's return?
c. If the market return did not change, what impact, if any, would be expected on the asset's return?
d. Would this asset be considered more or less risky than the market? Explain.

Solution Preview

a. if market return increases by 15%, the stock return will increase by 15% X 1.2 = 15%

b. -8% X 1.2 = ...

Solution Summary

Interpreting beta

$2.19