Suppose the Following Equation Best Describes the Evolution of β

question 56

Multiple Choice

Suppose the following equation best describes the evolution of β over time: β_t = 0.31 + 0.82β_{t - 1}.
If a stock had a β of 0.88 last year, you would forecast the β to be _______ in the coming year.

• A) 0.88
• B) 0.82
• C) 0.31
• D) 1.03

---

Definitions:

Least-Squares Regression

A statistical technique used to determine the line that best fits a set of data points, minimizing the sum of the squares of the differences between the observed and estimated values.

Variable Cost

Expenses that change in direct proportion to the amount of production or the quantity of output generated.

Fixed Cost

Costs that remain constant in total despite changes in the levels of production or output within a certain range.

Variable Cost

Expenses that vary directly with the level of production or sales volume.