Supposed investors expect the market rate of return this year to be 14 percent. A stock with a beta of .8 has an expected rate of return of 12 percent. If the market return this year turns out to be 10 percent, what is your best guess as to the rate of return on the stock?
2007-11-25 06:50:54 · 4 answers · asked by Bridgette 1 in Business & Finance ➔ Investing
Sometimes I wonder about investing. There is no one that can determine the market return of a stock in the short term.
1 year is SHORT TERM.
Beta as I remember has to do with volatility not rate of return.
The Long term is another story.
Anyone that says they know which way the stock market is going is guessing. It may be an educated guess but still a guess.
I suppose I didnt answer your question. O well sorry about that I promise to do better next time.
Good Luck Gerry
2007-11-25 07:35:28 · answer #1 · answered by tndiehard 2 · 1⤊ 1⤋
The rate of return on the stock could be totally independent of the rest of the stock market. Your question is irrelevant.
2007-11-25 17:55:51 · answer #2 · answered by !!! 7 · 0⤊ 1⤋
You need a risk free rate to figure that out. Right now the yield on the 10 year treasury bond is 4.01 percent. In that case the answer would be 8.8 percent.
2007-11-25 16:37:36 · answer #3 · answered by jeff410 7 · 0⤊ 1⤋
One of the people gave you the right answer. You do have to have a risk free rate (which is a t-bill). However, his formula is not quite right. He has the right variables but due to the order of operations, he is incorrect. It is r/f+(r/m-r/f)beta=expected return.
2007-11-25 20:06:31 · answer #4 · answered by Chris G 2 · 0⤊ 0⤋