You Are Given the Following Returns on "The Market" and Stock

question 21

Multiple Choice

You are given the following returns on "the market" and Stock F during the last three years.We could calculate beta using data for Years 1 and 2 and then, after Year 3, calculate a new beta for Years 2 and 3.How different are those two betas, i.e., what's the value of beta 2 ? beta 1? (Hint: You can find betas using the Rise-Over-Run method, or using your calculator's regression function.) $$\begin{array} { c r r } \text { Year } & \text { Market } & \text { Stock F } \\1 & 6.10 \% & 6.50 \% \\2 & 12.90 \% & - 3.70 \% \\3 & 16.20 \% & 21.71 \%\end{array}$$

• A) 7.89
• B) 8.30
• C) 8.74
• D) 9.20
• E) 9.66

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Definitions:

Net Income

The amount of profit a company generates after deducting all its costs, expenses, taxes, and interest from its total revenue.

Dividends

Payments made by a corporation to its shareholders, usually as a distribution of profits.

Payout Ratio

A financial metric indicating the percentage of earnings paid to shareholders in the form of dividends, reflecting a company's dividend sustainability.

Dividends

Distributions from a company to its shareholders, typically sourced from the firm's earnings.