What is the beta of a security where the expected return is double that of the stock market, there is no correlation coefficient relative to the U.S.stock market, and the standard deviation of the stock market is .18?
A)0.00
B)1.00
C)1.25
D)2.00

Question

Quizplus · Accepted Answer

The beta of a security measures the volatility of the security relative to the market. A beta of 1.0 indicates that the security has the same volatility as the market. A beta greater than 1.0 means that the security is more volatile than the market, while a beta less than 1.0 means that the security is less volatile than the market.

Given that the expected return of the security is double that of the stock market, it implies that the security is riskier than the stock market. However, the fact that it has no correlation coefficient relative to the U.S. stock market means that it does not move with the market at all. Therefore, it is impossible to calculate the beta of the security.

The best answer, in this case, is A) 0.00, which represents a security with zero correlation to the market, and thus beta cannot be calculated.

What Is the Beta of a Security Where the Expected