Question

You hear on the news that the​ S&P 500 was down 2.0 % today relative to the​ risk-free rate​ (the market's excess return was negative 2.0 % ). You are thinking about your portfolio and your investments in Zynga and Proctor and Gamble.

a. If Zynga beta is 1.3, what is your best guess as to Zynga's excess return today?
b. If Proctor and Gamble beta is 0.4, What is your best guess as to P&G excess return today?

Answer 1

a) -2.6%

b) -2.8%

Step-by-step explanation:

a) If Zynga beta is 1.3, the best guess as to Zynga's excess return today will be:

Zynga beta * Market Excess return =

-2% * 1.3 = -2.6%

Therefore, the best guess as to Zynga's excess return today if Zynga beta is 1.3 is -2.6%

b) If Proctor and Gamble beta is 0.4, the best guess as to P&G excess return today will be:

Proctor and Gamble beta * Excess market return =

-2% * 0.4 = -2.8%

Therefore, if Proctor and Gamble beta is 0.4, the best guess as to P&G excess return today is -2.8%