The beta of a security is calculated by:
A)dividing the variance of the market by the covariance of the security with the market.
B)dividing the correlation of the security with the market by the variance of the market.
C)dividing the covariance of the security with the market by the variance of the market.
D)dividing the variance of the market by the correlation of the security with the market.
E)None of the above.

Question

Quizplus · Accepted Answer

The beta of a security is calculated as the covariance of the security with the market divided by the variance of the market. This is because beta measures the sensitivity of a security's returns to the returns of the overall market, and the covariance measures how much the security's returns move in relation to the market. Dividing by the variance of the market standardizes the measure, making the beta a unitless metric.

The Beta of a Security Is Calculated By