For each additional 1 percent change in market return, the return on a stock having a beta of 2.2 changes, on average, by
A)1.00 percent.
B)0.55 percent.
C)2.20 percent.
D)1.10 percent.

Question

Quizplus · Accepted Answer

The beta of a stock represents the sensitivity of its returns to the market returns. A beta of 2.2 indicates that the stock's returns are expected to change 2.2 times more than the market returns. Therefore, for each 1 percent change in the market return, we can expect a 2.2 percent change in the return of the stock. Thus, the answer is C.

For Each Additional 1 Percent Change in Market Return, the Return