Suppose You Forecast That the Market Index Will Earn a Return

question 67

Multiple Choice

Suppose you forecast that the market index will earn a return of 15% in the coming year.Treasury bills are yielding 6%.The unadjusted $\beta$ of Mobil stock is 1.30.A reasonable forecast of the return on Mobil stock for the coming year is _________ if you use a common method to derive adjusted betas.

• A)15.0%
• B)15.5%
• C)16.0%
• D)16.8%

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Definitions:

Prediction Error

The difference between observed values and the values predicted by a model.

Intercept

In mathematics and statistics, the point at which a line or curve intersects a given axis on a graph.

Predicted Income

An estimate of future income based on variables such as education, occupation, and previous earnings.

Correlation

A statistical measure that expresses the extent to which two variables change together, suggesting a possible relationship between them.