Final answer:
The stock with a beta of 0.73 is expected to A)decline by 14.6% when the market declines by 20%, aligning with option A.
Step-by-step explanation:
The question relates to the concept of beta in finance, which measures the volatility of a stock in relation to the overall market. Given that OKAY stock has a beta of 0.73, we can determine its expected performance in relation to a market decline. If the market is expected to decline by 20%, then the expected decline in OKAY stock's price can be calculated by multiplying the market's decline by the stock's beta (0.73).
This gives us 0.73 * 20% = 14.6%, which indicates that OKAY stock is expected to decline by 14.6%. Therefore, the correct answer to the student's question is A) Decline by 14.6%.
The beta coefficient measures the sensitivity of a stock's returns to changes in the overall market. A beta of 0.73 indicates that the stock is less volatile than the market. In this case, if the market declines by 20%, we can calculate the expected decline in the OKAY stock.
Expected decline in OKAY stock = Beta coefficient * Market decline
= 0.73 * 20%
= 14.6%
Therefore, the OKAY stock is expected to decline by 14.6% based on its beta coefficient and the expected market decline of 20%.