168k views
2 votes
OKAY stock has a beta of 0.73. The market as a whole is expected to decline by 20%, thereby causing OKAY stock to

A) Decline by 14.6%
B) Decline by 14%
C) Decline by 20%
D) Decline by 14.6%

User Dveim
by
8.1k points

1 Answer

4 votes

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%.

User MilesHampson
by
8.0k points

No related questions found

Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.

9.4m questions

12.2m answers

Categories