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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] New post 01 Feb 2008, 22:11
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] New post 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] New post 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] New post 02 Feb 2008, 14:47
i was gonna ask .... whats beta ??? :???
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Re: Real life MBA math question [#permalink] New post 04 Feb 2008, 12:09
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Re: Real life MBA math question [#permalink] New post 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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