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# Ongoing performance of a company with a negative beta

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There are few, if any, real companies with negative betas. But suppose you found one
With beta = - .25.

a. How would you expect this stock's rate of return to change if the overall market rose by an extra 5 percent? What if the market fell by an extra 5 percent?

b. You have \$1 million invested in a well-diversified portfolio of stocks. Now you receive an additional \$20,000 bequest. Which of the following actions will yield the safest overall portfolio return?
i. Invest \$20,000 in Treasury bills (which have beta = 0).
ii. Invest \$20,000 in stocks with beta = 1.
iii. Invest \$20,000 in the stock with beta; = -.25.

#### Solution Preview

There are few, if any real companies with negative betas. But suppose you found one with Beta=-0.25

a) How would you expect this stock's rate of return to change if the overall market rose by an extra 5 percent? What if the market fell by an extra 5 percent?

In ...

#### Solution Summary

Stock rate return and safest portfolio return for a company with a negative beta is found.

\$2.19