Final answer:
With a beta of 2.8, World-Wide Television Productions stock is expected to increase by 14 percent in value if the stock market increases by 5 percent, because the stock's beta indicates it is 2.8 times more volatile than the market.
Step-by-step explanation:
If the beta for the stock market in general is 1.0, it indicates that the stock market has an average level of volatility in comparison to the market as a whole. For World-Wide Television Productions, a beta of 2.8 means that the stock is significantly more volatile than the market. Beta is used to measure a stock's volatility in relation to the overall market, and it is a key concept in portfolio management and capital asset pricing model (CAPM).
If the stock market increases in value by 5 percent, a stock with a beta of 2.8 would be expected to increase by 2.8 times that rate. To calculate the expected increase in value for World-Wide Productions stock:
- Expected Increase = Market Increase (%) × Beta
- Expected Increase = 5% × 2.8
- Expected Increase = 14%
Therefore, if the stock market increases by 5 percent, the expected increase in value for World-Wide Productions stock would be 14 percent.