Explain what is meant by beta. What type of risk does beta measure? What is the market return?

Explain what is meant by beta. What type of risk does beta measure? What is the market return? How is the interpretation of beta related to the market return?

Expert Solution

S-22 Explain what is meant by beta. What type of risk does beta measure? What is the market return? How is the interpretation of beta related to the market return?

Beta is a coefficient that measures the volatility of the stock. Beta measures the systematic risk of the stock in comparison to the unsystematic risk of the market risk.

Market return is the return on the index that is a proxy to the performance of the market. eg. return on S&P 500.

If beta is 1, then the stock is as volatile as the market.

If beta is less than 1, then the stock is less volatile than the market.

If beta is greater than 1, then the stock is more volatile than the market.

jeff jeffy answered 2 years ago

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