$\begin{array}{c}
\begin{array}{c}
\underline{\text { Year }} \
1 \
2 \
3 \
4
\end{array}
\begin{array}{c}
\underline{\text {Stock X}}\
-27 \% \
6 \% \
34 \%\
11\%
\end{array}
\begin{array}{c}
\underline{\text { Market } }\
-7 \% \
11 \% \
18 \% \
10\%
\end{array}
\end{array}$

-The market has a standard deviation of 13.6% while a risky stock has a standard deviation of 22.4%. The covariance of the stock with the market is 0.012. What is the beta of the stock?
A) 1.05
B) -1.27
C) 0.49
D) 0.38
E) 0.65

Question

$\begin{array}{c}
\begin{array}{c}
\underline{\text { Year }} \
1 \
2 \
3 \
4
\end{array}
\begin{array}{c}
\underline{\text {Stock X}}\
-27 \% \
6 \% \
34 \%\
11\%
\end{array}
\begin{array}{c}
\underline{\text { Market } }\
-7 \% \
11 \% \
18 \% \
10\%
\end{array}
\end{array}$

-The market has a standard deviation of 13.6% while a risky stock has a standard deviation of 22.4%. The covariance of the stock with the market is 0.012. What is the beta of the stock?
A) 1.05
B) -1.27
C) 0.49
D) 0.38
E) 0.65

Quizplus · Accepted Answer

The formula for beta of the stock is:

β = Cov(stock, market) / Var(market)

Since we are given the covariance and variance of the market, we can substitute in these values to get:

β = 0.012 / (0.136^2) = 0.654 ≈ 0.65

Therefore, the answer is E.

-The Market Has a Standard Deviation of 13