Assume lhe beleas for secunies A, B, and C are as show\' here. a, Cakulale lhe c

Question

Assume lhe beleas for secunies A, B, and C are as show' here. a, Cakulale lhe change m 'elum or (ach seurily ir Ive markel experienues an "KIease In its rale urretur' or 13.3% owe the next penod b. Calculate the change in return lor each security itthe market experiences a decrease in its rate at return at 9 7% over 1h next period c. Rank and discuss the relative rsk of each security on the basis of your findings. Which security might perform best dunng an economic downtun? Explain a, caculate tne chenge 1n return tor each security it trie market expenences en ncrease in its rate ot return ot 13.3% over the next perod. Data Table (Click on the icon located on the top right comer of the data table below in order to copy ils conlents inlo a spreadstheet.) Seciurty A's change in return will be Security B's change in return will be %. Security C's change in return will be96. (Round to two decimal places.) b. Calculate the change in return lor each security itthe market experiences a decrease in its rate at return at 9 7% over 1h next panod Security A's change in return will be D%. Seciurty H's change in return will be Security C's change in return will be % (Round to two decimal places) c Rank and discuss the relative risk ofeach security on he basis of vour ndings. Which security might perform best during an economic downturn? Explain (Round to two decimal places Round to two decimal places.) Security Beta 1 37 0.77 -0 94 - Round to two decimal places.) Print Done (Raun ta tva decimal places) Selec the best choice below OA. Sccurity B is the least risky since its return is kast responsive (regardless of direction) to changes in the market return O B. During an econmic dotum, it can probably be assumed that the markereurn would decrease this occurred, sccurity C would perform best Otherwise, security B would be best since it would be least respnive to a change in the market return C. Security C could be called defensive since it moves in the opposite direction from the market(its return ncreased when the market return felland vice versa). O D. Security A is the most risky. It has the highest relevant risk, as determined by the beta values and the greater changes in security A's returm for a given change in the market returm. Clirk to seleet vnir answens)

Explanation / Answer

We simply multiply betas with change in market to get change in securities

a)

b)

c) Security A is riskiest as it has the highest beta while security B is less riskier. Security C moves in opposite direction to the direction of the market. Therefore security C shall be best in downturn.
Hence all options are correct
E is the applicable option

Market Change 13.30% Security Beta Change in security A 1.37 18.22% increase B 0.77 10.24% increase C -0.94 -12.50% decrease

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