A Stock Has a Beta of 1

question 89

Multiple Choice

A stock has a beta of 1.30 and an expected return of 16 percent. The risk-free rate is 5 percent. If a portfolio of the two assets has a beta of 0.85, what is the weight of the stock?

• A) 34.62%
• B) 48.71%
• C) 59.87%
• D) 65.38%
• E) 54.21%

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Definitions:

Point Elasticity

The measure of how much the quantity demanded of a good responds to a change in price at a specific point on the demand curve.

Producer Surplus

The difference between the amount a producer is paid for a good and the minimum amount they are willing to accept for producing it.

Equilibrium Quantity

The quantity of goods or services supplied is equal to the quantity demanded at the market price.

Equilibrium Price

The price at which the quantity demanded by consumers equals the quantity supplied by producers, resulting in market stability.