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
Related questions
Question
![Risk Swan's Sportswear plans to launch a line of designer jeans with the help of one well-known designer. Because of the highly competitive nature of the industry, the
line of jeans has been given a code name, Stretch. Swan's market research has established a forecast shown in the following table. E. Use the table to calculate the
average return for the line.
The average return for the line is
%. (Enter as a percentage and round to two decimal places.)
(Click on the icon here a in order to copy the contents of the data table below
into a spreadsheet.)
Market acceptance Probability
Very poor
Annual rate of return
0.08
- 0.017
Poor
0.19
0.039
0.46
0.074
age
Good
0.18
0.115
Excellent
0.09
0.166](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fbc4d623f-c711-4b60-bab4-ca95e65a373c%2F93de28df-ea77-4efe-95b9-5bd879f979c8%2Fq0dl34m_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Risk Swan's Sportswear plans to launch a line of designer jeans with the help of one well-known designer. Because of the highly competitive nature of the industry, the
line of jeans has been given a code name, Stretch. Swan's market research has established a forecast shown in the following table. E. Use the table to calculate the
average return for the line.
The average return for the line is
%. (Enter as a percentage and round to two decimal places.)
(Click on the icon here a in order to copy the contents of the data table below
into a spreadsheet.)
Market acceptance Probability
Very poor
Annual rate of return
0.08
- 0.017
Poor
0.19
0.039
0.46
0.074
age
Good
0.18
0.115
Excellent
0.09
0.166
![Interpreting beta A firm wishes to assess the impact of changes in the market return on an asset that has a beta of 1.1.
a. If the market return increased by 17%, 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?
a. If the market return increased by 17%, the impact on the asset's return is
%. (Round to one decimal place. Enter a negative percentage number if the asset return decreases.)
b. If the market return decreased by 5%, the impact on the asset's return is
%. (Round to one decimal place. Enter a negative percentage number if the asset retum decreases.)
c. If the market return did not change, the impact on the asset's return is %. (Round to one decimal place. Enter a negative percentage number if the asset return decreases.)
d. Would this asset be considered more or less risky than the market? (Select from the drop-down menus.)
The asset is
the market portfolio, which has a beta of](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fbc4d623f-c711-4b60-bab4-ca95e65a373c%2F93de28df-ea77-4efe-95b9-5bd879f979c8%2Fd5msbxc_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Interpreting beta A firm wishes to assess the impact of changes in the market return on an asset that has a beta of 1.1.
a. If the market return increased by 17%, 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?
a. If the market return increased by 17%, the impact on the asset's return is
%. (Round to one decimal place. Enter a negative percentage number if the asset return decreases.)
b. If the market return decreased by 5%, the impact on the asset's return is
%. (Round to one decimal place. Enter a negative percentage number if the asset retum decreases.)
c. If the market return did not change, the impact on the asset's return is %. (Round to one decimal place. Enter a negative percentage number if the asset return decreases.)
d. Would this asset be considered more or less risky than the market? (Select from the drop-down menus.)
The asset is
the market portfolio, which has a beta of
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