Compute the domestic country beta of Stansfield Bicycles as well as its world beta.

Question

Quizplus · Accepted Answer

The domestic beta of Stansfield Bicycles is calculated solely from the covariance between the stock returns of the company and the market returns in its home country. A beta of 1.00 means that Stansfield Bicycles's stock has the same volatility as the overall market in its home country. Meanwhile, the world beta of Stansfield Bicycles is a measure of the stock's sensitivity to global market movements. A beta of 0.80 implies that, on average, for every 1% change in global markets, the stock price of Stansfield Bicycles will change by 0.80%. Therefore, the best choice is A, as it provides reasonable beta estimates for the two aforementioned factors.

Compute the Domestic Country Beta of Stansfield Bicycles as Well