The beta is the relationship of a stock's expected return to the broad market's return. A "high beta" stock will have a beta over 1.00, and thus move up more than the market when the market is advancing, and decline more than the market when the market is declining. A "low beta" stock will decline less than the market, or advance less than the market, depending.
The problem with beta is that it assumes a linear relationship, and what you describe here clearly is not. Your stock falls when the market rises a little, and rises more than the market when the market is advancing. To calculate beta, you should look at a longer term analysis of your stock and the market -- say, weekly observations over a year. Most betas are calculated using this length of data. But check formulas -- many different ones are out there.
Also remember that beta is only one measure of a stock's performance. Alpha is the performance of a stock that cannot be explained by its beta and the broad market movement. And of course, all of this is a "hypothesis" of market behavior which is useful in understanding broad actions, but very weak in predicting individual stock behavior.
14
2.0%
expected market return = risk free + beta*(market return - risk free) So by putting in values: 20.4 = rf+ 1.6(15-rf) expected market return = risk free + beta*(market return - risk free) So by putting in values: 20.4 = rf+ 1.6(15-rf) where rf = risk free 20.4 - 24 = rf - 1.6rf -3.6 = -0.6rf rf = 6
Expected return= risk free rate + Risk premium = 11 rate of return on stock= Riskfree rate + beta x( expected market return- risk free rate)
11.84%
This should be correct in a perfect market. Not true usually as assets are often mis priced. Expected return is the return/discount that market is using to get the value of the asset while required return is the discount / return that gets you the true intrinsic value of an asset
It really depends on the future. There are several factors that can effect the return on a future. It is not that easy to determine a return.
The market risk premium is measured by the market return less risk-free rate. You can calculate the market risk premium as market risk premium is equal to the expected return of the market minus the risk-free rate.
A stock is expected to pay a dividend of $1 at the end of the year. The required rate of return is rs 11%, and the expected constant growth rate is 5%. What is the current stock price?
A stock is expected to pay a dividend of $0.75 at the end of the year. The required rate of return is rs = 10.5%, and the expected constant growth rate is g = 6.4%. What is the stock's current price?
the economic unit that is willing to pay the highest expected return receives the funds
If the required rate of return is 11 the risk free rate is 7 and the market risk premium is 4 If the market risk premium increased to 6 percent what would happen to the stocks required rate of return?