You are employed by the German firm Techno and have been asked to estimate the s

Question

You are employed by the German firm Techno and have been asked to estimate the systematic risk of the firm’s equity. You have collected the following data:

Correlation coefficients between returns

Standard deviation
of returns

Expected return

Techno

German
stock index

World
stock index

Techno

German stock index

World stock index

What is world beta of Techno?

Correlation coefficients between returns

Standard deviation
of returns

Expected return

Techno

German
stock index

World
stock index

Techno

1.00 0.90 0.60 18% ?

German stock index

1.00 0.75 15% 14%

World stock index

1.00 10% 12%

Explanation / Answer

World Beta of Techno= Correlation Coeff Between World index & Techno*(Std Dev Techno return/Std Dev World Index) Corre Coeff World Index& Techno=             0.6 Std dev Techno return= 18% Std Dev World Index returns 10% World Beta Techno=0.60*(0.18/0.10)                                 =         1.080 World beta of Techno= 1.080

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