The latest hot stock has a beta of 1.5. If the returns on the market decline by 2 percent, you should expect the price of the latest hot stock to go:
A) up 3%
B) up 3.5%
C) down 2%
D) down 3%
E) down 3.5%

Question

Quizplus · Accepted Answer

The beta of a stock measures its volatility in comparison to the market. A beta of 1.5 means the stock is 50% more volatile than the market. Therefore, if the market declines by 2%, a stock with a beta of 1.5 would decline by 3% (1.5 times the market's movement).

The Latest Hot Stock Has a Beta of 1