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Basic Question 11 of 11
An individual security, Q, has covariance with the market portfolio, M, of 0.0750 (decimal). The expected return on the market portfolio is 15% and its standard deviation is 24%. Security Q has a standard deviation of 40%. The beta for Q is ______.
B. 0.77
C. 0.31
A. 1.30
B. 0.77
C. 0.31
User Contributed Comments 6
| User | Comment |
|---|---|
| group | Good question |
| DonAnd | Nice question |
| GJCFA | Beta of market portfolio is 1. If Q has SD more than that of market portfolio, then it's beta has to be more than 1. Only option available is A. No calculation needed! |
| moneyguy | I'm sure we'll be seeing some of these on the exam. |
| johntan1979 | GJCFA, your assumption is wrong. In this case, the correlation coefficient, p is 1.30 = p x 0.40 / 0.24 p = 0.78 If p is 0.462, then beta is 0.77 (less than one) Don't simply assume. Know the formula and calculate it. |
| khalifa92 | or: (0.075/(0.24*0.4))*(0.4/0.24)=1.3021 |
I used your notes and passed ... highly recommended!
Lauren
Learning Outcome Statements
calculate and interpret beta
CFA® 2024 Level I Curriculum, Volume 2, Module 2.