The beta of an individual security is calculated by:
A) dividing the covariance of the security with the market by the variance of the market.
B) dividing the correlation of the security with the market by the variance of the market.
C) multiplying the variance of the market by the covariance of the security with the market.
D) multiplying the variance of the market by the correlation of the security with the market.
E) None of these.

Question

Quizplus · Accepted Answer

Beta is the measure of systematic risk of a security, and is calculated by dividing the covariance of the security with the market by the variance of the market. Option A correctly represents this calculation. Option B is incorrect as it divides the correlation with the variance of the market, which does not give the beta value. Options C and D are incorrect as they multiply the variance of the market with the covariance and correlation, respectively, which does not give the beta value. Therefore, the correct answer is A.

The Beta of an Individual Security Is Calculated By