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(Solution) - 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 ? = ? .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 ? = 0).


ii. Invest $20,000 in stocks with ? = 1.


iii. Invest $20,000 in the stock with ? = .25.


Explain your answer.


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This question was answered on: Jul 11, 2017

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