Question

Consider a stock that has a covariance of returns to the market

of 0.0128. The standard deviation of the market is 0.16. What is
the beta of this stock? Enter your answer rounded to 2 DECIMAL
PLACES.

Answer 1

The beta of the stock is 0.5.

Step-by-step explanation:

The beta of a stock measures the stock's sensitivity to changes in the market. It is calculated by dividing the covariance of the stock's returns to the market by the variance of the market returns. In this case, the covariance of the stock's returns to the market is given as 0.0128 and the standard deviation of the market returns is 0.16.

To calculate the beta, we need to divide the covariance by the variance of the market returns. The variance of the market returns is the square of the standard deviation, which is 0.16^2 = 0.0256.

Therefore, the beta of the stock is 0.0128 / 0.0256 = 0.5.