Business Finance

Fin534 Corporate Finance

Berk and Demarzo (2nd ed)

Chapter 10 Capital Markets and Pricing of Risk

Problem 31

Suppose the market portfolio is equally likely to increase by 30% or decrease by 10%.  

a. Calculate the beta of a firm that goes up on average by 43% when the market goes up and goes down by 17% when the market goes down.  

b. Calculate the beta of a firm that goes up on average by 18% when the market goes down and goes down by 22% when the market goes up.

c. Calculate the beta of a firm that is expected to go up by 4% independently of the market.

Solution:

a. Beta is 1.50.

b. Beta is 1.00

c. Beta is 0.00

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