Based on the following information,make an estimate of the stock's beta: Month 1 = Stock +1.5%,Market +1.1%; Month 2 = Stock +2.0%,Market +1.4%; Month 3 = Stock -2.5%,Market -2.0%.
A) Beta is greater than 1.0.
B) Beta is less than 1.0.
C) Beta equals 1.0.
D) There is no consistent pattern of returns.

Question

Quizplus · Accepted Answer

The beta coefficient measures the sensitivity of a stock's returns to the market's returns. In this case, we see that in Month 1, the stock outperformed the market by 0.4% (1.5% - 1.1%), indicating a beta greater than 1.0. In Month 2, the stock again outperformed the market by 0.6% (2.0% - 1.4%), further supporting a beta above 1.0. In Month 3, both the stock and market experienced negative returns, but the stock underperformed the market by 0.5% (-2.5% - (-2.0%)), which suggests a higher degree of volatility than the market. Therefore, we can conclude that the stock's beta is likely greater than 1.0.

Based on the Following Information,make an Estimate of the Stock's