Question

A firm wishes to assess the impact of changes in the market return on an asset that has a beta of 1.2. a. If the market return increased by 15​%, what impact would this change be expected to have on the​ asset's return? b. If the market return decreased by 8​%, 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 15​%, the impact on the​ asset's return is nothing​%

Answer 1

The answers are considered below.

Step-by-step explanation:

A)Asset Return will increase by : 15 *1.20 = 18%

B)Asset return will decrease by : 8 *1.20 = 9.6%

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

d)The market beta is 1 .Since the beta of asset (1.2) is more than beta of market ,asset is more risky than market. It means with 1% change in market asset will change by 1*1.2 =1.2 %