If, on average, a 1% increase in the market portfolio leads to an increase of 2% in the value of an asset, then the asset's beta equals
A)0.5.
B)1.
C)2.
D)Not enough information has been given to determine the asset's beta.

Question

Quizplus · Accepted Answer

The asset's beta is calculated as the ratio of the covariance of the asset's returns and the market's returns to the variance of the market's returns. In this case, a 1% increase in the market leads to a 2% increase in the asset, indicating the asset's returns change by twice the market's change, giving it a beta of 2.

If, on Average, a 1% Increase in the Market Portfolio