The beta coefficient A stock’s contribution to the market risk of a well-diversified portfolio is calledrisk. It can be measured by a metric called the beta coefficient, which calculates the degree to which a stock moves with the movements in the market. Based on your understanding of the beta coefficient, indicate whether each statement in the following table is true or false. 1. Stock A’s beta is 1.0; this means that the stock moves in the same direction and magnitude as the market.
A. True B. False
2. A stock that is more volatile than the market will have a beta of more than 1.0.
A. True B. False
3. Higher-beta stocks are expected to have lower required returns.
A. True B. False
There are different ways of calculating the beta coefficient for a stock. Using the information given in the following table, calculate the beta coefficient of Stock I.
Data
Stock I's standard deviation 35.00%
Market's standard deviation 32.00%
Correlation between Stock i and the market 0.65
Beta coefficient of Stock i:
To calculate the beta of another company, using regression analysis, you get the value of Ra as 0.27. Based on your calculation, which of the following interpretations is true?
1. The percentage of variance in the company's stock explained by the market is lower than that of a typical stock.
2. The percentage of variance in the company's stock explained by the market is higher than that of a typical stock.