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NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Risk, Return and Performance of Funds

A scheme has a beta of 1.2 relative to its benchmark. If the benchmark rises by 10%, what is the scheme's expected movement, all else equal?

The scheme is expected to rise about 12%. A beta of 1.2 means the scheme moves 1.2 times the benchmark, so a 10% rise in the benchmark translates into roughly a 12% rise in the scheme.

  1. ARise of about 8.3%
  2. BRise of about 12%Correct
  3. CRise of about 10%
  4. DRise of about 1.2%

Explanation

Expected change = beta x benchmark change = 1.2 x 10% = 12%. Dividing 10 by 1.2 gives the 8.3% distractor, which inverts the relationship. A beta above 1 means the scheme is more volatile than the benchmark.

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