Michael Margolis is a single parent and motivational training consultant from Re
ID: 2644987 • Letter: M
Question
Michael Margolis is a single parent and motivational training
consultant from Reno, Arizona. He is wondering about potential returns on
investments given certain amounts of risk. Michael invested a total of $6000
in three stocks ($2000 in each) with different betas: stock A with a beta of 0.8, stock B with a beta of 1.7,
and stock C with a beta of 2.5.
(a) If the stock market rises 7 percent over the
next year, what will be the likely value of each
investment?
(b) If the stock market declines 8 percent over the
next year, what will be the likely value of each of
Michael
Explanation / Answer
(a) If the stock market rises 7 percent over the next year, what will be the likely value of each investment?
Stock A Investment would be Increased by = 7*0.8 = 5.6%
Stock B Investment would be Increased by = 7*1.7 = 11.9%
Stock C Investment would be Increased by = 7*2.5 = 17.5%
Investment Value in Next Year :
Stock A = 2000*(1+5.6%) = $ 2112
Stock B= 2000*(1+11.9%) = $ 2238
Stock C = 2000*(1+17.5%) = $ 2350
(b) If the stock market declines 8 percent over the next year, what will be the likely value of each of Michael