Question

The beta coefficient for a stock is usually estimated or determined by which of the following:

Select one: a. Regulatory officials at the stock exchange determine target returns based on acceptable risk profiles for the company b. Computing the standard deviation of returns for the stock under various states of the economy c. Slope of the line from a linear regression of weekly or monthly returns on the common stock vs. weekly or monthly returns on an overall market index d. Determined by the firm's board of directors in consultation with the firm's senior management

Answer 1

C.slope of the line from a linear regression of weekly or monthly returns on the common stock vs weekly or monthly returns on overall market index.

Beta is the measure of the movement of the stock in response to movement of the market.

A regression analysis will help us in having a correct measurement of the beta of the stock of the given options.

Neither the regulatory officials of the stock exchange nor the board of directors will determine the beta.

Only calculation of standard deviation of stock's returns will not help us in calculation of beta.