The covariance of the market returns with the stock’s returns is .006 and the standard deviation of the market’s returns is .07. What is the stock’s beta? A) 1.0. B) 1.5. C) 2.0. D) 1.2.
0.006/0.0049 D) 1.2
how did you figure?
I thought std dev was variance sqrt.
(standard deviation)^2 = variance standard deviation= (variance) ^1/2
It is, .07 squared = .0049
Pepp, http://en.wikipedia.org/wiki/Beta_coefficient Beta = covariance / Variance
or correlation times ratio of SD of stock to market
cov(s,m) = beta*variance (market) beta = .006/07^2 = 1.22