The correlation coefficient between stock B and the market portfolio is 0.8. The standard deviation of the stock B is 35% and that of the market is 20%. Calculate the beta of the stock.
A) 1.0
B) 1.4
C) 0.8
D) 0.7

Question

Quizplus · Accepted Answer

Beta is given by the formula:
Beta = Correlation * (Standard Deviation of Stock / Standard Deviation of Market)

Using the given values, we can calculate the beta of Stock B as follows:
Beta = 0.8 * (35% / 20%) = 1.4

Therefore, the correct answer is choice B.

The Correlation Coefficient Between Stock B and the Market Portfolio