CMA Intermediate · Financial Management and Business Data Analytics · Risk and Return
The covariance of a stock's returns with the market's returns is 90 and the variance of market returns is 60. The stock's beta is:
Beta is 1.5. It is calculated as the covariance of the stock with the market divided by the market variance, so 90 divided by 60 equals 1.5, meaning the stock is expected to move one and a half times as much as the market.
- A0.67
- B1.50Correct
- C5,400
- D0.50
Explanation
Beta = Cov(stock, market) / Var(market) = 90 / 60 = 1.5. Option 0.67 inverts the ratio. Option 5,400 multiplies the two figures.
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