Suppose the Following Equation Best Describes the Evolution Of $\beta$ Over Time

question 12

Multiple Choice

Suppose the following equation best describes the evolution of $\beta$ over time: $\beta$ _t = 0.31 + 0.82 $\beta$ _{t - 1}.
If a stock had a $\beta$ of 0.88 last year, you would forecast the $\beta$ to be _______ in the coming year.

• A)0.88
• B)0.82
• C)0.31
• D)1.03

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Definitions:

Issuing Bonds

The process by which a company or government borrows money from investors by selling bonds, a form of long-term debt where the issuer promises to pay back the principal along with interest.

Stock

An equity instrument representing ownership interest in a company, entitling the holder to a claim on the company's assets and earnings.

Bond Indenture

A legal contract between a bond issuer and bondholders specifying the terms of the bond, such as the maturity date, rate of interest, and collateral, if any.

Market Rate

The prevailing interest rate available in the marketplace for instruments of similar risk and maturity.