Question

On 3/21/2023, ABC stock had a beta of 2. On the same day the NASDAQ decreased by 3%, how would ABC stock be expected to change?

Answer 1

ABC stock with a beta of 2 is expected to change by approximately -6% in response to a 3% decrease in the NASDAQ, as its volatility is twice that of the market.

Step-by-step explanation:

When the NASDAQ decreased by 3%, a stock with a beta of 2, like ABC stock, would be expected to change in a way that is reflective of its beta. The beta value is a measure of a stock's volatility in relation to the market. A beta of 2 means that the stock is expected to move twice as much as the market. Thus, if the NASDAQ falls by 3%, ABC stock would be expected to fall by approximately 6%, since 2 (the beta value) times -3% (the NASDAQ change) equals -6%.