Question

The stock of Static Corporation has a beta of 0.7. If the expected return on the market increases by 6%, the expected return on Static Corporation should increase by

Answer 1

Answer:  4.2%

Explanation:

Beta is a measure of sensitivity of a stock in that it measures how the stock reacts to a movement in market return. The Beta of the Market is 1.

If a Stock's Beta is 2, this means that if expected market return increases by 1%, the stock's expected return will increase by 2%. If a Stock's beta is 0.5 then if the expected return on the market increases by 1%, the stock's expected return will increase by 0.5%.

In this case the expected return on the market increases by 6% so the expected return on Static Corporation should increase by;

= 0.7 * 6%

= 4.2%