The correlation coefficient between stock B and the market portfolio is 0.8. The standard deviation of stock B is 35 percent and that of the market is 20 percent. Calculate the beta of the stock.
A)1.0
B)1.4
C)0.8
D)0.7

Question

Quizplus · Accepted Answer

Beta measures the systematic risk of an asset relative to the market. The formula for beta is: 
Beta = (Correlation coefficient * Standard deviation of stock B) / Standard deviation of the market 
Substituting the given values: 
Beta = (0.8 * 35%) / 20% = 1.4 
Therefore, the answer is B, 1.4.

The Correlation Coefficient Between Stock B and the Market Portfolio