9. The beta coefficient Aa Aa A stock\'s contribution to the market risk of a we
ID: 2821250 • Letter: 9
Question
9. The beta coefficient Aa Aa A stock's contribution to the market risk of a well-diversified portfolio is called the Capital Asset Pricing Model (CAPM), this risk can be measured by a metric called the beta coefficient, which calculates the degree to which a stock moves with the movements in the market. risk. According to Based on your understanding of the beta coefficient, indicate whether each statement in the following table is true or false: Statement TrueFalse A stock that is more volatile than the market will have a beta of more than 1.0 Higher-beta stocks are expected to have lower required returns Stock A's beta is 1.0; this means that the stock moves in the same direction and magnitude as the market. C There are different ways of calculating the beta coefficient for a stock. Using the information given in the following table, calculate the beta coefficient of Stock i:Explanation / Answer
A stock's contribution to the market risk of a well-diversified portfolio is called relevant risk.
A stock that is more volatile than the market will have a Beta of more than 1.0 – True
higher beta stocks are expected to have a lower required return – False
Stock As beta is 1.0 this means the stock moves in the same direction and magnitude as the market – True
Beta = Correlation coefficient between stock and market x Standard deviation of stock return/standard deviation of market return
Beta = 0.91 x 49%/44.80% = 0.9953
To calculate the beta of another company, using regression analysis, you get the value of R (squared) as 0.27. Based on your calculation, which of the following interpretation is true?
27% of the variance in the company’s return can be explained by the market returns.
R square is the correlation coefficient between market return and stock return, so it gives the detail of how closely data fitted to the best fit line,
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