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Question1.15 Consider the single-index model. The alpha of a stock is 1%. The return on the market index is 8%. The risk-free rate of return is 3%. During a sample period, the stock earns an excess return above the risk-free rate of 10%. Assuming no residual, the beta ß of the stock is: 1.80 2.00 1.00 1.50 1.17 ResetMaximum marks: 2.5 Flag question undefined
Options
A.1.80
B.2.00
C.1.00
D.1.50
E.1.17
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Step-by-Step Analysis
We start by identifying the given values and the model framework. In the single-index (CAPM-like) model, the stock's excess return over the risk-free rate is expressed as: ExcessReturn_stock = alpha + beta * (MarketReturn - RiskFreeRate), assuming no residual return.
Option 1: 1.80
- Check if this beta is consistent with the data. ......Login to view full explanationLog in for full answers
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