Skip to content

NISM Certifications · NISM-Series-VIII: Equity Derivatives · Understanding Index

Which statement about a beta of a stock relative to the market index is correct?

A beta of 1.5 means the stock tends to move about 1.5 percent for each 1 percent move in the market index. Beta measures sensitivity to market movements, so a value above 1 indicates higher volatility than the index.

  1. AA beta of 1.5 means the stock tends to move 1.5 percent for every 1 percent move in the indexCorrect
  2. BA beta of 1.5 means the stock has 1.5 times lower volatility than the index
  3. CA beta of 1.5 means the stock return is always 1.5 percent
  4. DA beta below zero means the stock cannot be traded

Explanation

Beta measures sensitivity of a stock's returns to the index returns. A beta of 1.5 implies an expected 1.5 percent move for a 1 percent index move on average. It does not imply lower volatility or a fixed return.

Did you get it right without looking?

One question tells you little. A timed set on Understanding Index shows your real accuracy, how long you take and where you lose marks.

Practise Understanding IndexFree diagnostic mock

More Understanding Index questions