The formula for calculating beta is given by the dividing the ___________ of the stock with the market portfolio by the ___________ of the market portfolio.
A) variance; covariance
B) covariance; variance
C) standard deviation; variance
D) expected return; variance
E) expected return; covariance

Question

Quizplus · Accepted Answer

Beta is defined as the covariance between the returns of the stock and the returns of the market portfolio, divided by the variance of the market portfolio. So, the correct formula for calculating beta is Cov(stock, market) / Var(market), where Cov denotes covariance and Var denotes variance. Therefore, the answer is B, which correctly matches these terms with the options.

The Formula for Calculating Beta Is Given by the Dividing