Question

Which of the following would not be a method for calculating beta?

A) The correlation coefficient times the stock's standard deviation, divided by the market's standard deviation
B) The covariance between the returns on the stock and the market, divided by the variance of the market return
C) The average stock price divided by the average market price
D) The slope of a plot of stock returns versus market returns
E) None of these answers are correct

Answer 1

The method that would not be used for calculating beta is dividing the average stock price by the average market price.

Step-by-step explanation:

The method that would not be used for calculating beta is C) The average stock price divided by the average market price.

Beta is a measure of an asset's volatility in relation to the market. It measures the sensitivity of the asset's returns to changes in the market returns.

Options A, B, and D are all valid methods for calculating beta. Option A calculates beta using the correlation coefficient and the standard deviation of the stock and market returns. Option B calculates beta using the covariance between the stock and market returns. Option D calculates beta using the slope of a plot of stock returns versus market returns.

Therefore, the correct answer is C) The average stock price divided by the average market price.