Question

A firm wishes to assess the impact of changes in the market return on an asset that has a beta of 1.6. a. If the market return increased by 18​%, what impact would this change be expected to have on the​ asset's return? b. If the market return decreased by 5​%, what impact would this change be expected to have on the​ asset's return? c. If the market return did not​ change, what​ impact, if​ any, would be expected on the​ asset's return? d. Would this asset be considered more or less risky than the​ market?

Answer 1

Answer:

a) 28.8%

b) 8.0%

c) Asset return will not change if market return did not change .

d) this asset can be considered more risky than market.

Explanation:

A)Asset Return will increase by : 18 *1.6 = 28.8%

B)Asset return will decrease by : 5*1.60 = 8.0%

c)Asset return will not change if market return did not change

d)The market beta is 1 .Since the beta of asset (1.6) is more than beta of market ,asset is more risky than market. It means with 1% change in market asset will change by 1*1.6 =1.6 %