Which of the following will be needed to compute the beta of an individual security?
I. Average return on the market for the period
II. Standard deviation of the security and the market
III. Return on the security and the market by time period for a specified period of time
IV. Correlation of the security to the market
A) I and III
B) I and IV
C) II and III
D) II, III and IV
E) I, II, III and IV

Question

Quizplus · Accepted Answer

Beta is calculated using the covariance of the security's returns with the market's returns divided by the variance of the market's returns. This calculation requires the average return on the market (I), the standard deviation of both the security and the market to understand volatility (II), the return on the security and the market by time period to calculate covariance (III), and the correlation of the security to the market to understand how the security moves in relation to the market (IV).

Which of the Following Will Be Needed to Compute the Beta