Suppose the Following Equation Best Describes the Evolution of β

question 39

Multiple Choice

Suppose the following equation best describes the evolution of β over time:β_t= 0.30 + 0.70β_t-1 If a stock had a β of 0.82 last year,you would forecast the β to be _______ in the coming year.

• A)0.91
• B)0.77
• C)0.63
• D)0.87
• E)none of the above

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Definitions:

Bond Prices

The market value of bonds, which can fluctuate based on changes in interest rates, credit quality of the issuer, and market demand.

Interest Rates

Interest rates are the cost of borrowing money or the reward for saving, typically expressed as a percentage of the principal for a specified period.

S&P Rating

A credit rating given by Standard & Poor's, evaluating the creditworthiness of a borrower, ranging from AAA (excellent) to D (in default).

Investment Grade

A credit rating indicating a low risk of default, used to classify bonds that are considered safe investments.