The correlation coefficient between stock B and the market portfolio is 0.8.The standard deviation of 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 the standardized measure of the sensitivity of an individual security's returns to fluctuations in the market portfolio. We can calculate the beta of the stock using the formula: Beta = Correlation Coefficient * (Standard Deviation of Stock/Standard Deviation of Market).
Here, beta = 0.8 * (0.35/0.20) = 1.4
Therefore, the best choice is B) 1.4.

The Correlation Coefficient Between Stock B and the Market Portfolio