Question

The common stock of Blasco Books has a standard deviation of 16.4 percent as compared to the market standard deviation of 12.7 percent. The covariance of this stock with the market is .0217. What is the beta of Blasco Books' stock?

Answer 1

1.35

Step-by-step explanation:

For determining the beta first we have to compute the correlation which is shown below:

= Market standard deviation ÷ common stock standard deviation × covariance

= 16.4% ÷ 12.7% × 0.217

= 1.04187

Now the beta of the stock is

= correlation × Market standard deviation ÷ common stock standard deviation

= 1.04187 × 16.4% ÷ 12.7%

= 1.35

We simply applied the above formulas