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Portfolio went up 5.04%, market went up 4.4%, so they conclude that effective beta is 0.0504/0.04=1.15
but is this the deffinition of beta, how much a stock goes up compared to how much the mak et goes up?
Er=rf+B(rm-rf), so if you have a beta of 2, your return should not be 2Rm, but rf+2rm-2rf ….
I feel like I should not be bringing in the SML here, beta is a regression of stock returns vs market returns, so it seems what the question is doing is right, but i just forgot this stuff and not sure what is the relevance of sml now…
i would appreciate a refresh esp from an ninjaz and cps out there