Which of the following is **NOT** a valid method for estimating the beta of a company's stock? Assume that markets are efficient, a long history of past data is available, the stock possesses idiosyncratic and market risk. The variances and standard deviations below denote total risks.

A stock has a beta of **1.5**. The market's expected total return is **10**% pa and the risk free rate is **5**% pa, both given as effective annual rates.

What do you think will be the stock's expected return over the next year, given as an effective annual rate?

A stock has a beta of **1.5**. The market's expected total return is **10**% pa and the risk free rate is **5**% pa, both given as effective annual rates.

In the last 5 minutes, bad economic news was released showing a higher chance of recession. Over this time the share market **fell** by **1**%. The risk free rate was unchanged.

What do you think was the stock's historical return over the last 5 minutes, given as an effective 5 minute rate?

A stock has a beta of **1.5**. The market's expected total return is **10**% pa and the risk free rate is **5**% pa, both given as effective annual rates.

Over the last year, bad economic news was released showing a higher chance of recession. Over this time the share market **fell** by **1**%. So ##r_{m} = (P_{0} - P_{-1})/P_{-1} = -0.01##, where the current time is zero and one year ago is time -1. The risk free rate was unchanged.

What do you think was the stock's historical return over the **last year**, given as an effective annual rate?

**Question 776** market efficiency, systematic and idiosyncratic risk, beta, income and capital returns

Which of the following statements about returns is **NOT** correct? A stock's:

The market's expected total return is **10**% pa and the risk free rate is **5**% pa, both given as effective annual rates.

A stock has a beta of **0.5**.

In the last 5 minutes, the federal government unexpectedly raised taxes. Over this time the share market fell by **3**%. The risk free rate was unchanged.

What do you think was the stock's historical return over the last 5 minutes, given as an effective 5 minute rate?

**Question 807** market efficiency, expected and historical returns, CAPM, beta, systematic risk, no explanation

You work in Asia and just woke up. It looked like a nice day but then you read the news and found out that last night the American share market fell by **10**% while you were asleep due to surprisingly poor macro-economic world news. You own a portfolio of liquid stocks listed in Asia with a beta of **1.6**. When the Asian equity markets open, what do you expect to happen to your share portfolio? Assume that the capital asset pricing model (CAPM) is correct and that the market portfolio contains all shares in the world, of which American shares are a big part. Your portfolio beta is measured against this world market portfolio.

When the Asian equity market opens for trade, you would expect your portfolio value to:

**Question 988** variance, covariance, beta, CAPM, risk, no explanation

Price Data Time Series |
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Sourced from Yahoo Finance Historical Price Data | |||||||||||

Date | S&P500 Index (^GSPC) | Apple (AAPL) | |||||||||

Open | High | Low | Close | Adj close | Open | High | Low | Close | Adj close | ||

2007, Wed 3 Jan | 1418 | 1429 | 1408 | 1417 | 1417 | 12.33 | 12.37 | 11.7 | 11.97 | 10.42 | |

2008, Wed 2 Jan | 1468 | 1472 | 1442 | 1447 | 1447 | 28.47 | 28.61 | 27.51 | 27.83 | 24.22 | |

2009, Fri 2 Jan | 903 | 935 | 899 | 932 | 932 | 12.27 | 13.01 | 12.17 | 12.96 | 11.28 | |

2010, Mon 4 Jan | 1117 | 1134 | 1117 | 1133 | 1133 | 30.49 | 30.64 | 30.34 | 30.57 | 26.6 | |

Source: Yahoo Finance. | |||||||||||

Which of the following statements about the above table which is used to calculate Apple's equity beta is **NOT** correct?