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There are few, if any, real companies with negative betas.

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

Solution Preview

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 ...

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%.

\$2.19