Question

Beta is defined as:

the ratio of the variance of market returns to the covariance of returns on a security with the market

the inverse of the slope of the security regression line

a measure of volatility of a security's returns relative to the returns of a broad-based market portfolio of securities.

all of the above

Answer 1

Beta of security i = Covariance (Ri,Rm)/Variance(Rm)

Ri = Return on individual security

Rm = Return on the overall market.

Beta is the risk of a security compared to the market.

For example, a Beta that is greater than 1 implies a stock that is more volatile than

the market.

Beta measures the risk of an individual stock that cannot be reduced by diversification.

Beta is the slope of the security regression line.

The security regression line is a line through a regression of data points from an individual stock's returns against those of the market.

Beta is defined as:

a measure of volatility of a security's returns relative to the returns of a broad-based market portfolio of securities.