For a particular share, a 1 per cent change in the market index generally leads to a return of less than 1 per cent on the company's share. What can be concluded about the value of beta (fi)? A) fi 1 B) fi = - 1 C) fi

Question

For a particular share, a 1 per cent change in the market index generally leads to a return of less than 1 per cent on the company's share. What can be concluded about the value of beta (fi)?
A) fi > 1
B) fi = - 1
C) fi < 1
D) fi = 1

Quizplus · Accepted Answer

Beta (fi) measures a stock's volatility in relation to the overall market. A beta of 1 indicates that the stock's price will move with the market, while a beta less than 1 means that the stock is less volatile than the market. In this case, since a 1% change in the market index leads to a return of less than 1% on the company's share, it means that the company's share is less volatile than the market. Therefore, the value of beta (fi) must be less than 1, which is option C.

For a Particular Share, a 1 Per Cent Change in the Market