Question

In: Finance

The correlation coefficient between a stock's return and broad market index returns is 0.60. The stock...

The correlation coefficient between a stock's return and broad market index returns is 0.60. The stock has a standard deviation of 40%. The market index has a standard deviation of 20%. Calculate the beta coefficient.  

Multiple Choice

  • 0.3

  • 0.6

  • 0.9

  • 1.2

  • 1.5

Solutions

Expert Solution

Beta (By Correlation method) = Correlation Coefficient of Stock Return and Market Index *( Standard deviation of Asset / Standard deviation of market)

= 0.60 * (0.40/0.20)

= 0.60 * 2

= 1.20

Option D (1.20) is the correct answer


Related Solutions

Find the correlation between the country (Philippines) stock index return and the USA index return. Would...
Find the correlation between the country (Philippines) stock index return and the USA index return. Would it be beneficial from the point of view of international portfolio diversification to invest in this country for an investor holding only the USA index portfolio?
The correlation between the stock returns of Geode Corp. and those of the market is 0.4....
The correlation between the stock returns of Geode Corp. and those of the market is 0.4. The standard deviation of the stock returns of Geode Corp. is 50% whereas the standard deviation of the returns of the market is 15%. The risk-free rate is 2%. If the market’s expected return is 7%, what is the CAPM expected return of Geode Corp.?
2) The market return, based on a broad market index, is estimated to be 15%. Calculate...
2) The market return, based on a broad market index, is estimated to be 15%. Calculate Company ABC’s required return if the risk-free rate is 4% and the stock’s beta is 1.35 (round your answer to two decimal places). (i) Describe the assumptions related to the problem: (ii) Apply the appropriate mathematical model: (iii) Calculation:
Q6: What is the Correlation Coefficient (Say between two stock returns over time)? How do standard...
Q6: What is the Correlation Coefficient (Say between two stock returns over time)? How do standard deviations and covariance interact in this equation (show equation)? What is the correlation between stocks/bond market returns, and inflation/inflation expectations/interest rates over time? What does a -1, 0, and +1 correlation mean? Show Equation/Definition!!! and answer all questions!
Q6: What is the Correlation Coefficient (Say between two stock returns over time)? How do standard...
Q6: What is the Correlation Coefficient (Say between two stock returns over time)? How do standard deviations and covariance interact in this equation (show equation)? What is the correlation between stocks/bond market returns, and inflation/inflation expectations/interest rates over time? What does a -1, 0, and +1 correlation mean? Show equation and answer all questions! Q7: Show the Portfolio Standard Deviation (equation). Say for total returns on assets in a stock portfolio. Show equation! --What would HIGH covariance between stocks in...
Consider the following returns. The Correlation between Stock X's and Stock Z's returns is closest to:...
Consider the following returns. The Correlation between Stock X's and Stock Z's returns is closest to: Year End Stock X Realized Return Stock Y Realized Return Stock Z Realized Return 2004 20.1% -14.6% 0.2% 2005 72.7% 4.3% -3.2% 2006 -25.7% -58.1% -27.0% 2007 56.9% 71.1% 27.9% 2008 6.7% 17.3% -5.1% 2009 17.9% 0.9% -11.3% 0.71 0.60 0.62 0.05
consider the following returns. The Correlation between Stock X's and Stock Z's returns is closest to:...
consider the following returns. The Correlation between Stock X's and Stock Z's returns is closest to: Year End Stock X Realized Return Stock Y Realized Return Stock Z Realized Return 2004 20.1% -14.6% 0.2% 2005 72.7% 4.3% -3.2% 2006 -25.7% -58.1% -27.0% 2007 56.9% 71.1% 27.9% 2008 6.7% 17.3% -5.1% 2009 17.9% 0.9% -11.3% 0.71 0.60 0.62 0.05
Define correlation coefficient. Describe in your own words the difference between correlation coefficient and coefficient of...
Define correlation coefficient. Describe in your own words the difference between correlation coefficient and coefficient of determination.
Is the following statement true or false:  "The correlation between (U.S.) stock market returns and long-term U.S....
Is the following statement true or false:  "The correlation between (U.S.) stock market returns and long-term U.S. treasury bond returns is generally negative during times when equity markets are crashing." True False Is the following statement true or false: " Consider a strategy that buys 1-year US treasury bonds, holds them to maturity, and uses the proceeds from the maturing bonds to buy new 1-year bonds. In this case, the actual/realized returns is uncertain, but it is always positive." True False...
calculate the correlation between the returns of Stock A and Stock B. If you invest 30%...
calculate the correlation between the returns of Stock A and Stock B. If you invest 30% in Stock A and 70% in Stock B, what would the expected return and standard deviation of your portfolio be? States of the Economy Probability Return of Stock A Return of Stock B Recession 0.15 -0.10 -0.25 Low Growth 0.25 -0.05 -0.15 Normal 0.35 0.08 0.20 Boom 0.25 0.35 0.40
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT