Take the difference between the stock's returns and divide it by the
difference in the market returns.
Stock A) beta = (20 - 0)/(10 - (-10)) = 1
Stock B) beta = (20 - (-20))/ (10 - (-10)) = 2
etc.
This is based on r = rf + B(rm - rf) :
for stock A - set up two equations, with two unknowns:
20 = rf + B(10 - rf)
0 = rf + B(-10 -rf)
add together: 20 - 0 = B (10 - (-10))
--> B = ( 20 - 0 ) / (10 - (-10))
> ----------
> From:
> Dionne_Chisolm@mercer.com[SMTP:Dionne_Chisolm@mercer.com]
> Sent: Tuesday, August 25, 1998 3:30 PM
> To: studygroup5B@lists.casact.org
> Subject: Chapter 7 - Quiz problem
>
> Can someone please provide a solution for Quiz problem #6 in
> Chapter
> 7? Thank you.
>
>