The market portfolio return

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Reference no: EM131566017

Suppose the market portfolio’s return is 30% when the economy is strong and -20% when the economy is weak. A type S firm has a return of 45% when the economy is strong and a return of -30% when the economy is weak. A type I firm has also returns equal to 45% or -30%, but these returns will depend only upon firm-specific events and will be completely independent of the state of the economy.

(a) What is the beta for a type I firm?

(1) 1 (2) 0.75 (3) 0 (4) 1.5

(b) What is the beta for a type S firm?

(1) 1.5 (2) 0 (3) 1 (4) 0.75

Reference no: EM131566017

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