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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

jeff jeffy answered 2 years ago
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