NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Risk, Return and Performance of Funds
A fund has a beta of 1.5. If the market index is expected to fall by 8%, what change would be expected in the fund's value, other things being equal?
The fund is expected to fall by about 12%. A beta of 1.5 means the fund moves 1.5 times as much as the market, so an 8% market decline translates into a 1.5 x 8 = 12% decline in the fund.
- AFall of 12%Correct
- BFall of 8%
- CFall of 5.33%
- DRise of 12%
Explanation
Beta measures sensitivity to the market. Expected change = 1.5 x (-8%) = -12%. A fall of 5.33% wrongly divides by beta, and the other options ignore either beta or the direction of the move.
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