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) One year from today, the market will either be strong or

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) One year from today, the market will either be strong or [#permalink]

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01 Feb 2008, 22:11
This topic is locked. If you want to discuss this question please re-post it in the respective forum.

1.) One year from today, the market will either be strong or weak. The probability of each outcome, along with the return on the market and the return on Management Industries stock, are summarized in the following table.

State Prob. rmkt rmgmt
Strong 0.5 0.15 0.30
Weak 0.5 0.02 -0.05

What is the beta of Management Industries stock?
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Re: Real life MBA math question [#permalink]

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02 Feb 2008, 04:33
isnt this a simple weighted avg of just the stock?
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Re: Real life MBA math question [#permalink]

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02 Feb 2008, 11:59
GMATT73 wrote:
1.) One year from today, the market will either be strong or weak. The probability of each outcome, along with the return on the market and the return on Management Industries stock, are summarized in the following table.

State Prob. rmkt rmgmt
Strong 0.5 0.15 0.30
Weak 0.5 0.02 -0.05

What is the beta of Management Industries stock?

Beta of the stock = cov (MI, M)/var(M) = 2.692308

this could be a real course problem so it won't be good to discuss it in the public forum like this one.

if you need something more in detail, send pm.
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Re: Real life MBA math question [#permalink]

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02 Feb 2008, 14:47
i was gonna ask .... whats beta ???
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04 Feb 2008, 12:09
pmenon wrote:
i was gonna ask .... whats beta ???

Beta has multiple meanings but in finance its a measure of systematic risk of a stock's return. For more about Beta, refer to the following links:

http://en.wikipedia.org/wiki/Beta
http://en.wikipedia.org/wiki/Beta_coefficient
http://www.chicagogsb.edu/faculty/bio.a ... _id=159486
http://www-groups.dcs.st-and.ac.uk/~his ... scher.html
http://www.people.hbs.edu/mjensen/
http://www.stanford.edu/~wfsharpe/
http://www.wharton.upenn.edu/faculty/blume.html
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Re: Real life MBA math question [#permalink]

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04 Feb 2008, 12:40
pmenon wrote:
i was gonna ask .... whats beta ???

According to CAPM

Ret(Stock) = RFR + beta*(Ret(market) - RFR), where RFR - risk free rate.

beta reflects sensitivity of the stock return to the market return.
Re: Real life MBA math question   [#permalink] 04 Feb 2008, 12:40
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