Suppose the Following Equation Best Describes the Evolution of β

question 2

Multiple Choice

Suppose the following equation best describes the evolution of β over time:β_t = 0.4 + 0.6β_{t − 1}.If a stock had a β of 0.9 last year, you would forecast the β to be _______ in the coming year.

• A) 0.45
• B) 0.60
• C) 0.70
• D) 0.94

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Definitions:

Notes Payable

Short or long-term liabilities representing amounts the company owes on written promises to pay specified sums of money at future dates.

Equity Investments-AFS

Acronym for Available-for-Sale, equity investments are securities not classified as held-for-trading or held-to-maturity, and can be sold in response to liquidity needs.

Equity Method

An accounting technique used to record investments in other companies where the investor has significant influence but does not have full control.

Fair Value Method

The fair value method is an accounting approach that measures assets and liabilities at estimates of their current market value rather than historical cost.