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

question 28

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.)
$\begin{array}{ccc}\text { Year } &\text { Market }& {\text { Stock F }} \\1 & 6.10 \% & 6.50 \% \\2 & 12.90 \% & -3.70 \% \\3 & 1620 \% & 2171 \%\end{array}$

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

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Definitions:

Accelerated Depreciation

A method of depreciation in which an asset loses value faster in the initial years of its useful life, with decreased amounts in later years.

Net Present Value

A method of evaluating investments by calculating the present value of future cash flows minus the initial investment cost, used to assess the profitability of an investment.

Cash Inflows

Money received by a business from its operational, investment, and financing activities.

Internal Rate

Often related to the internal rate of return (IRR), it's a metric used in financial analysis to estimate the profitability of potential investments.