Questions are based on the following information:
The returns, variances, and covariances of annual returns for XYZ Corp. and AST Inc. have been calculated for the period 1999-2008 (n = 10). The values are:

-If the mean return and variance for the market (S&P/TSX Composite Index) for the period were 18.2 percent and 161.1 respectively, and the covariance between AST and S&P/TSX Composite Index was 159.4, the beta for AST would have been:
A) less than zero, negative.
B) between zero and .50.
C) between .50 and 1.00.
D) greater than 1.00.

Question

Questions are based on the following information:
The returns, variances, and covariances of annual returns for XYZ Corp. and AST Inc. have been calculated for the period 1999-2008 (n = 10). The values are:
 
-If the mean return and variance for the market (S&P/TSX Composite Index) for the period were 18.2 percent and 161.1 respectively, and the covariance between AST and S&P/TSX Composite Index was 159.4, the beta for AST would have been:
A) less than zero, negative. 
B) between zero and .50. 
C) between .50 and 1.00. 
D) greater than 1.00.

Quizplus · Accepted Answer

Beta is a measure of the volatility of a stock relative to the market. A beta of 1.00 indicates that the stock's volatility is equal to the market's volatility. A beta of less than 1.00 indicates that the stock's volatility is less than the market's volatility. A beta of greater than 1.00 indicates that the stock's volatility is greater than the market's volatility. In this case, the beta for AST is between .50 and 1.00, which indicates that the stock's volatility is less than the market's volatility.

Questions Are Based on the Following Information