The table below gives the historic return over the past five months for the market portfolio and two assets: A and B.Which of the answers below best describes the historic beta for A and B?

Question

The table below gives the historic return over the past five months for the market portfolio and two assets: A and B.Which of the answers below best describes the historic beta for A and B? A) β_A < 1; β_B < 1 B) β_A = 0; β_B < 1 C) β_A = 0; β_B > 0 D) β_A > 1; β_B > 1 E) β_A < 1; β_B > 1

Quizplus · Accepted Answer

Beta tells us that if the market's return changes by X%, then the asset's return changes by β*X%.
For each change in the return of the market, the return of stock A changed in the same direction by a smaller amount implying that stock A's beta is < 1.
For each change in the return of the market, the return of stock B changed in the same direction by a greater amount implying that stock B's beta is > 1.

The Table Below Gives the Historic Return Over the Past