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Suppose that the market portfolio is equally likely to increase by 24% or decrease by 8%.Security "X" goes up on average by 29% when the market goes up and goes down by 11% when the market goes down.Security "Y" goes down on average by 16% when the market goes up and goes up by 16% when the market goes down.Security "Z" goes up on average by 4% when the market goes up and goes up by 4% when the market goes down.
-The beta for security "Z" is closest to:
A)-1.00.
B)-0.25.
C)0.00.
D)0.25.

Question

Quizplus · Accepted Answer

Beta measures the sensitivity of a security's returns to the market returns. Beta can be calculated as the covariance between a security's returns and the market returns, divided by the variance of the market returns. The beta for security "Z" is 0, because its returns are not correlated with changes in the market. The average returns of security "Z" are constant, regardless of whether the market is up or down.

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