Security A has a beta of .9 and a standard deviation of its error term of 8%. If the standard deviation of the market is 10%, the total variance for Security A is
A) 17.2.
B) 73.
C) 145.
D) 154.

Question

Quizplus · Accepted Answer

The total variance of Security A can be calculated using the formula: Total Variance = (Beta^2 * Market Variance) + Variance of the error term. Given Beta = 0.9, Market Variance = (Market Standard Deviation)^2 = (10%)^2 = 100, and Variance of the error term = (Standard Deviation of the error term)^2 = (8%)^2 = 64. Thus, Total Variance = (0.9^2 * 100) + 64 = 81 + 64 = 145.

Security a Has a Beta of