if the market index increased by 10.3% during a period,a stock with beta of 1.8

Question

if the market index increased by 10.3% during a period,a stock with beta of 1.8 would be expected to ( increase or decrease) --------% during this same period ignore the risk free rate in calculating your answer if the market index increased by 10.3% during a period,a stock with beta of 1.8 would be expected to ( increase or decrease) --------% during this same period ignore the risk free rate in calculating your answer if the market index increased by 10.3% during a period,a stock with beta of 1.8 would be expected to ( increase or decrease) --------% during this same period ignore the risk free rate in calculating your answer

Explanation / Answer

Since the risk free return would be common in both previous as well as new return, that's why we ae excluding it from the calculation.

The stock of beta will increase since the market is rising. The rate of change in stock will be higher than rate of change in the market due to high beta. The stock will increase by the following percentage:

Percentage increase = 10.3 x 1.8 = 18.54%

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