Question

You hear on the news that the​ S&P 500 was down 2.9 % today relative to the​ risk-free rate​ (the market's excess return was negative 2.9 % ). You are thinking about your portfolio and your investments in Zynga and Proctor and Gamble. a. If​ Zynga's beta is 1.3​, what is your best guess as to​ Zynga's excess return​ today? b. If Proctor and​ Gamble's beta is 0.4​, what is your best guess as to​ P&G's excess return​ today? a. If​ Zynga's beta is 1.3​, what is your best guess as to​ Zynga's excess return​ today? ​Zynga's excess return today is nothing​%. ​(Round to one decimal​ place.) b. If Proctor and​ Gamble's beta is 0.4​, what is your best guess as to​ P&G's excess return​ today? Proctor and​ Gamble's excess return today nothing​%. ​(Round to one decimal​ place.)

Answer 1

Answer:

a) Excess return for Zynga = -3.8%

b)  Excess return for Proctor and Gamble = -1.2%

Explanation:

Given Data:

Market excess return = -2.9%

Zynga's bet = 1.3

Proctor and​ Gamble's beta = 0.4

(a) Excess return for Zynga is calculated using the formula;

Excess return for Zynga = Zynga beta * Market Excess return

                                            = 1.3 * ( - 2.9%)

                                            = -3.77% = -3.8%

(b) Excess return for Proctor and Gamble can be calculated using the formula;

Excess return for Proctor and Gamble = Proctor and Gamble beta * Market Excess return  

                                                             = 0.4 * ( - 2.9%)

                                                              = -1.16 % = -1.2%