Joe is a new investor and has been closely watching a company by the name of USA Ltd., a pharmaceutical company aiming to develop a coronavirus vaccine. Joe believes the following returns are possible in 2022 and has attached a probability to each potential outcome: Probability Possible Return .20 185.00% .30 83.50% .30 -5.00% .20 -100.00% e) The beta value for USA is 1.9. Explain what this number means. Include in your answer two differences between the standard deviation and beta.
Joe is a new investor and has been closely watching a company by the name of USA Ltd., a pharmaceutical company aiming to develop a coronavirus vaccine. Joe believes the following returns are possible in 2022 and has attached a probability to each potential outcome: Probability Possible Return .20 185.00% .30 83.50% .30 -5.00% .20 -100.00% e) The beta value for USA is 1.9. Explain what this number means. Include in your answer two differences between the standard deviation and beta.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Joe is a new investor and has been closely watching a company by the name of USA Ltd., a pharmaceutical company aiming to develop a coronavirus vaccine.
Joe believes the following returns are possible in 2022 and has attached a probability to each potential outcome:
|
Probability |
Possible Return |
|
.20 |
185.00% |
|
.30 |
83.50% |
|
.30 |
-5.00% |
|
.20 |
-100.00% |
e) The beta value for USA is 1.9. Explain what this number means. Include in your answer two differences between the standard deviation and beta.
Expert Solution
Step 1
Beta for USA ltd is 1.9 times. It means that If the overall market rises/falls by 1%, then USA ltd share price rises/falls by 1.9%
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