Question

Stock A has a beta of 1.15 , and stock B has a beta of 1 . The returns of stock A are ___ sensitive to changes in the market than are the returns of stock B.

a) 20% more
b) 15% more
c) slightly less
d) 20% less

Answer 1

The returns of stock A are 15% more sensitive to changes in the market than stock B's returns, based on their respective beta coefficients of 1.15 and 1.

Step-by-step explanation:

The beta coefficient in finance is a measure of the sensitivity of a stock's returns relative to the returns of the overall market. A beta of 1 implies that the stock is expected to move with the market. If stock A has a beta of 1.15, it means that stock A is 15% more sensitive to changes in the market than stock B, which has a beta of 1. Therefore, the correct answer to the student's question is b) 15% more. This indicates that if the market goes up or down, the value of stock A will increase or decrease by 15% more than stock B's change.