What Should Be the Beta of a Replacement Stock If

question 22

Multiple Choice

What should be the Beta of a replacement stock if an investor wishes to achieve a portfolio Beta of 1.0 by replacing Stock C in the following equally weighted portfolio: Stock A = .9 Beta; Stock B = 1.1 Beta; Stock C = 1.35 Beta?

• A)0.93 Beta
• B)1.00 Beta
• C)1.08 Beta
• D)1.15 Beta New Portfolio Beta = (.333 x .9) + (.333 x 1.1) + (.333 x Beta C)
• 1)0 = .3 + .366 +.333 x Beta C
• -)334 = .333 x Beta C

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Definitions:

Vickery Auctions

An auction format where the highest bidder wins but pays the second-highest bid, encouraging true value bidding.

Sealed-bid Auctions

A bidding process where all bidders submit their bids confidentially, with the highest bid usually winning the item or contract.

Bid-rigging

A form of fraud in which competitors agree in advance who will win a bidding process, undermining fair competition.

Sealed-bid Auctions

Auctions in which all bidders simultaneously submit sealed bids to the auctioneer, with no bidder knowing the bid of any other participant.