Real Companies with Negative Betas
There are few, if any, real companies with negative betas. But suppose you found one with B=-,25.
A. How would you expect this stock's rate of return to change if the overall market rose by an extra 5%? What if the market fell by an extra 5%?
B. You have $1 million invested in a well-diversified portfolio of stocks. Now you receive an additional $20000 bequest. Which of the following actions will yield the safest overall portfolio return?
1. Invest $20000 in Treasury bills(shich have a B=0).
2. Invest $20000 in stocks with B=1.
3. Invest $20000 in the stock with B=-.25
Explain your answer.