The covariance between YOHO stock and the S&P 500 is 0.05.The standard deviation of the stock market is 20 percent.What is the beta of YOHO?
A)0.00
B)1.00
C)1.25
D)1.42

Question

Quizplus · Accepted Answer

The formula for beta is β = cov(ri , rM ) / var(rM)
Given that cov(YOHO, S&P 500) = 0.05 and the standard deviation of the stock market is 20%, we need to calculate the variance of the S&P 500.
Variance of S&P 500 = (20%)^2 = 0.04
Now substituting the values in the formula,
β = 0.05 / 0.04 = 1.25
Therefore, the correct answer is C) 1.25.

The Covariance Between YOHO Stock and the S&P 500 Is