On average, when the overall market changes by 10%, the shares of Veracity Communications changes 12%.Veracity's beta is
A)1.2
B)8.33%
C)12%
D)15%

Question

Quizplus · Accepted Answer

The relationship between the market and Veracity's shares is measured by beta. Beta represents the volatility of a stock compared to the overall market. In this case, when the overall market changes by 10%, Veracity's shares change by 12%. This means Veracity's beta is greater than 1, indicating the stock is more volatile than the market. The calculation for beta is the percentage change in the stock's return divided by the percentage change in the market's return. Therefore, Veracity's beta is 12%/10% = 1.2.

On Average, When the Overall Market Changes by 10%, the Shares