You Are Considering Investing in Stock ABC

question 7

Multiple Choice

You are considering investing in Stock ABC.This stock has an expected return of 14%,the risk free rate is 5%,and the market risk premium (or Treynor Index) is 8%.What is the beta of Stock ABC?

• A) 0.950
• B) 1.125
• C) 1.250
• D) 1.400
• E) 1.500

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Definitions:

Predicted Values

These are values estimated based on a model, representing what is likely to happen under certain conditions according to that model.

Homoscedasticity

The condition where the variance of the residuals, or errors, in a regression model is constant across all levels of the independent variable.

Regression Analysis

Regression Analysis is a statistical method used to investigate and model the relationship between variables, typically one dependent variable and one or more independent variables.

Constant Variance

The condition in which the variance of error terms in a regression model is the same across all levels of the independent variables.