Question

The historical returns for the past three years for Stock B and the stock market portfolio are Stock B: 24 percent, 0 percent, 24 percent; market portfolio: 10 percent, 12 percent, 20 percent. Calculate the beta for Stock B.

Answer 1

stock B's beta = 0.125

Step-by-step explanation:

a stock's beta = covariance / variance

covariance = how the stock performs relative to the portfolio

variance = how the stock performs relative to its mean

using an excel spreadsheet, the covariance between stock B and the market portfolio = 0.0016 (=COVARIANCE.P function)

again using excel, the variance of stock B = 0.0128 (=VAR.P function)

stock B's beta = 0.0016 / 0.0128 = 0.125

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