CISCO System's stock has a correlation with the market of 0.65.CISCO's standard deviation of returns is 45% and standard deviation of the market is 20%.What is CISCO System's beta?
A) 0.29
B) 0.85
C) 1.19
D) 1.46
E) 1.76

Question

Quizplus · Accepted Answer

Step 1 - Compute the covariance of the returns. The correlation between the returns on C's stock and the market is: 11ea7fdb_fc07_db94_a768_7db68ef803ff_TB2902_11 = 11ea7fdb_fc07_db95_a768_3bc58ce61c55_TB2902_11 By rearranging the formula we know that the covariance is: COV(k_C,k_M) = 11ea7fdb_fc07_db96_a768_ebf5feb2ac85_TB2902_11 × 11ea7fdb_fc08_02a7_a768_99a85c990c3b_TB2902_11 11ea7fdb_fc08_02a8_a768_6969e5401d3c_TB2902_11 COV(k_C,k_M) = 0.65 × 0.45 × 0.20 = 0.0585 Step 2 - Use the covariance to compute Cisco's beta. β_i = 11ea7fdb_fc08_02a9_a768_11387100e1eb_TB2902_11 β = 11ea7fdb_fc08_02aa_a768_e589b762cf2b_TB2902_11 = 1.4625

CISCO System's Stock Has a Correlation with the Market of 0.65.CISCO's