The market rate of return increased by 8% while the rate of return on XYZ stock increased by 4%. The beta of XYZ stock is
A) -2.0.
B) -0.40.
C) 0.50.
D) 2.0.

Question

Quizplus · Accepted Answer

The beta of a stock measures its volatility in relation to the market. It is calculated as the covariance of the stock's returns with the market's returns divided by the variance of the market's returns. In this case, the market's return increased by 8% and the stock's return increased by 4%, which means the stock's return is half as volatile as the market's return. Therefore, the beta of XYZ stock is 0.50, indicating it is less volatile than the market.

The Market Rate of Return Increased by 8% While the Rate