The market risk,beta,of a security is equal to
A)the covariance between the security's return and the market return divided by the variance of the market's returns.
B)the covariance between the security and market returns divided by the standard deviation of the market's returns.
C)the variance of the security's returns divided by the covariance between the security and market returns.
D)the variance of the security's returns divided by the variance of the market's returns.
E)none of the above.

Question

Quizplus · Accepted Answer

The market risk beta is calculated as the covariance between the security's return and the market return divided by the variance of the market's returns. This is because beta measures the sensitivity of the security's returns to the market returns. A beta of 1 indicates a security that moves in line with the market, while a beta greater than 1 indicates a security that is more volatile than the market, and a beta less than 1 indicates a security that is less volatile than the market.

The Market Risk,beta,of a Security Is Equal to