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Suppose that the risk-free rate is 5% and the market portfolio has an expected return of 13% with a volatility of 18%.Monsters Inc.has a 24% volatility and a correlation with the market of .60,while California Gold Mining has a 32% volatility and a correlation with the market of -.7.Assume the CAPM assumptions hold.
-Monsters' beta with the market is closest to:
A)1.3.
B)1.0.
C)0.6.
D)0.8.

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Quizplus · Accepted Answer

Monsters' beta is calculated as the product of its correlation with the market and the ratio of its volatility to the market's volatility: Beta = 0.60 * (24% / 18%) = 0.8.

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