26 Jun A stock’s contribution to the market risk of a well-diversified portfolio is
A stock’s contribution to the market risk of a well-diversified portfolio is called the Capital Asset Pricing Model (CAPM), this risk can be measured by a metric called the beta coefficient, which calculates the degree to which a stock moves with the movements in the market. risk. According to Based on your understanding of the beta coefficient, indicate whether each statement in the following table is true or false: Statement True False Beta measures the volatility in stock movements relative to the market Over time, a stock with a beta of 1.0 produces a return that goes up and down with a 1:1 relationship with the return on the market. A stock that is more volatile than the market will have a beta of less than 1.0. There are different ways of calculating the beta coefficient for a stock. Using the information given in the following table, calculate the beta coefficient of Stock i Data Stock i’s standard deviation Market’s standard deviation Correlation between Stocki and the market 42.00% 38.40% 0.78 Beta coefficient of Stock i There are different ways of calculating the beta coefficient for a stock. Using the information given in the following table, calculate the beta coefficient of Stock i Data Stock i’s standard deviation Market’s standard deviation Correlation between Stock i and the market 42.00% 38.40% 0.78 Beta coefficient of Stock i To calculate the beta of another company, using regression analysis, you get the value of R2 as 0.27. Based on your calculation, which of the following interpretations is true? O 73% of the variance in the company’s returns can be explained by the market returns. 27% of the variance in the company’s returns can be explained by the market returns.
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